International Trade and Growth: The Impact of Seletion and Imitation

Sarah Stolting

No ECO2009/21, Economics Working Papers from European University Institute

Abstract: This paper develops an endogenous growth model with heterogeneous firms to analyze the impact of intra-industry trade on productivity growth. Growth is generated by selection, and sustained by entrants imitating successful incumbents. Firms are subject to idiosyncratic productivity shocks and some firms, mostly those with relatively low productivity levels, are forced to exit. This results in an increase in average productivity of the economy. The intraindustry effect of trade works through self-selection of the most productive firms into the export market. It leads to a reallocation of resources towards more efficient firms. Since the effect of selection and imitation on growth is amplified by the trade-induced selection process, opening up to trade increases the growth rate of productivity.

Keywords: Endogenous growth; Intra-industry trade; Heterogeneous firms; Selection (search for similar items in EconPapers)
JEL-codes: F10 L11 O40 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-dev and nep-int
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