Innovation and Trade with Heterogeneous Firms

Arbeitspapier

This paper examines how trade liberalization affects the innovation incentives of firms, and what this implies for industry productivity and social welfare. For this purpose we develop a reciprocal dumping model of international trade with heterogeneous firms and endogenous R&D. We identify two effects of trade liberalization on productivity: a direct effect through changes in R&D investment, and a selection effect due to inefficient firms leaving the market. We show how these effects operate in the short run when market structure is fixed, and in the long run when market structure is endogenous. Among the robust results that hold for any market structure are that trade liberalization (i) increases (decreases) aggregate R&D for low (high) trade costs; (ii) increases expected industry productivity; and (iii) raises expected social welfare if trade costs are low.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1430

Classification and Topics

• Classification: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Economic Integration
• Subject: international trade ; firm heterogeneity ; R&D ; productivity ; market structure ; Außenhandelsliberalisierung ; Innovation ; Produktivität ; Industrielle Forschung ; Endogener technischer Fortschritt ; Wohlfahrtseffekt ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Long, Ngo Van ; Raff, Horst ; Stähler, Frank
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/17893
• Last update: 10.03.2025, 11:42 AM CET