Trade and firm heterogeneity in a Schumpeterian model of growth

Tetsugen Haruyama and Laixun Zhao

Research in Economics, 2017, vol. 71, issue 3, 540-563

Abstract: The present paper explores the effect of trade liberalization on the level of productivity as well as the rate of productivity growth in an R&D-based model with heterogeneous firms. We introduce new and plausible features that are absent in existing studies. First, technical progress takes the form of continual quality improvement of products over time. Second, firm entry and exit are endogenously determined due to creative destruction of products. In this framework, we demonstrate that a lower transport cost or export sunk cost unambiguously reallocates resources to R&D and top-quality product industries from low-quality good industries. This means that trade liberalization increases the rate of technical progress as well as the level of manufacturing productivity. These results are found to be robust in an extended model with population growth without scale effects.

Keywords: Trade; Firm heterogeneity; Technical progress; Growth (search for similar items in EconPapers)
JEL-codes: F10 F43 O30 O40 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reecon:v:71:y:2017:i:3:p:540-563

DOI: 10.1016/j.rie.2017.07.002

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