Trapped Factors and China’s Impact on Global Growth

Competition and innovation: an inverted-U relationship

Nicholas Bloom, Paul Romer, Stephen Terry and John van Reenen

The Economic Journal, 2021, vol. 131, issue 633, 156-191

Abstract: After a recent increase in Chinese import competition, European firms increased innovation. We present and rationalise these patterns using ‘trapped factors’ at the micro level within a stylised equilibrium model of product-cycle trade and growth. Trade integration of the magnitude observed between the OECD and low-wage nations as a whole can considerably increase the long-run growth rate and welfare. In the short run exposed firms devote trapped factors to increased innovation, leading both to increased innovation at these individual firms as well as to a small amount of extra transitional growth overall. China accounts for half of the dynamic trade gains.

Date: 2021
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Related works:
Working Paper: Trapped factors and China’s impact on global growth (2020)
Working Paper: Trapped factors and China’s impact on global growth (2015)
Working Paper: Trapped Factors and China's Impact on Global Growth (2014)
Working Paper: Trapped Factors and China's Impact on Global Growth (2014)
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