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A Trapped-Factors Model of Innovation

Nicholas Bloom (), Paul Romer, Stephen J. Terry and John van Reenen ()

American Economic Review, 2013, vol. 103, issue 3, 208-13

Abstract: We explain a counterintuitive empirical finding: Firms facing more import competition do more innovation. In our model, factors are trapped inside a firm. An increase in import competition encourages a firm to innovate by reducing the opportunity cost of inputs. Without trapped factors, trade liberalization leads to a small permanent increase in the worldwide rate of growth. With trapped factors, firms that face more import competition do relatively more innovation. The extra innovation induced by trapped factors induces a small permanent increase in aggregate output, consumption, and welfare, generalizing the appropriate estimate of the gains from trade.

JEL-codes: D21 F14 L21 O31 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.3.208
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Related works:
Working Paper: A Trapped Factors Model of Innovation (2013) Downloads
Working Paper: A trapped factors model of innovation (2013) Downloads
Working Paper: A trapped-factors model of innovation (2013) Downloads
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