Trade Liberalization, Technology Diffusion, and Productivity

Keiichi Kishi and Keisuke Okada

MPRA Paper from University Library of Munich, Germany

Abstract: This study develops the international trade theory of technology diffusion with heterogeneous firms. Each new entrant randomly searches for and meets incumbents and then adopts their existing technology. As in previous international trade models based on firm heterogeneity, trade liberalization induces the least productive firms to exit, and then the resources can be reallocated toward more productive firms. However, we show that this resource reallocation effect is mitigated by the entry of low-productive firms. Trade liberalization facilitates the diffusion of existing low-productive technologies to new entrants, which shifts the weight in the productivity distribution from the upper tail area to the area around the least productivity. Thus, some resources can be reallocated toward low-productive firms. In addition, trade liberalization reduces domestically produced varieties. Consequently, we show the non-monotonic relationship between trade liberalization and aggregate productivity.

Keywords: International trade; Innovation; Productivity distribution (search for similar items in EconPapers)
JEL-codes: F12 L11 O33 (search for similar items in EconPapers)
Date: 2018-08
New Economics Papers: this item is included in nep-bec, nep-eff and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:88597

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