Innovation and Trade with Heterogeneous Firms

Ngo Van Long, Horst Raff () and Frank Stähler ()

No CESifo Working Paper No. 2796, CESifo Working Paper Series from CESifo Group Munich

Abstract: This paper examines how trade liberalization affects the innovation incentives of firms, and what this implies for industry productivity. For this purpose we develop a reciprocal dumping model of international trade with heterogeneous firms and endogenous R&D. Among the robust results that hold both in the short run when there is no entry, and in the long run under free entry are that trade liberalization increases (decreases) aggregate R&D for low (high) trade costs and increases expected industry productivity. The central results of the paper regarding firm and industry level R&D spending differ significantly from the case of homogeneous firms.

Keywords: international trade; firm heterogeneity; R&D; productivity; market structure (search for similar items in EconPapers)
JEL-codes: F12 F15 (search for similar items in EconPapers)
Date: 2009
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Working Paper: Innovation and Trade with Heterogeneous Firms (2008)
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