Technology Upgrading, Exporting and Heterogeneous Firms

Shon Ferguson

No 2010:16, Research Papers in Economics from Stockholm University, Department of Economics

Abstract: Empirical evidence shows that R&D spending is highly correlated with firm productivity, highly concentrated among large firms, and responsive to trade liberalization. This paper develops a model of product upgrading with heterogeneous firms that captures these characteristics by allowing firms to choose their optimal level of fixed cost spending from a continuum. The endogenous component of fixed costs is assumed to represent R&D or product development that is spent once but reaps demand benefits over all the markets the firm serves. This mechanism encourages firms to export and capture economies of scale in fixed cost spending. The model makes two new predictions. The first prediction is that exporters upgrade while domestic firms cut costs when trade liberalizes. The second prediction is that the selection effect of trade liberalization is weaker in industries characterized by intense upgrading competition between firms.

Keywords: International Trade; Upgrading; Trade Liberalization (search for similar items in EconPapers)
JEL-codes: F10 F12 O30 O31 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2010-10-26
New Economics Papers: this item is included in nep-int and nep-tid
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sunrpe:2010_0016

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