Technology Adoption and the Selection Effect of Trade

No ECO2007/58, Economics Working Papers from European University Institute

Abstract: The reallocation of output across plants and the productivity growth at individual plants are both important sources of productivity growth at the industry level. Recent evidence has shown that trade liberalization is related to both e..ects. While a trade model with firm heterogeneity can account for the first e..ect, it can not explain the second effect. We add to this model the option for firms to costly adopt more productive technologies and show that plant productivity actually rises in response to lower trade costs. Following trade liberalization, selection into exporting raises the market share only for some exporters. Therefore, a greater scale of operation amplifies their return from costly productivity-enhancement investments and leads a greater proportion of them to implement a more innovative technology.

Keywords: International Trade; Technology Adoption; Productivity (search for similar items in EconPapers)
JEL-codes: F12 F15 L11 O33 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: Written 2007
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Working Paper: Technology adoption and the selection effect of trade (2007)
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