Trade, Firm Selection and Innovation: The Competition Channel
Giammario Impullitti and
Omar Licandro ()
Economic Journal, 2018, vol. 128, issue 608, 189-229
We study the welfare gains from trade in an economy with heterogeneous firms, variable markups and endogenous growth. Variable markups arise from oligopolistic competition, and costâ€ reducing innovation is the engine of longâ€ run growth. Trade liberalisation stiffens competition by reducing markups, generating tougher firm selection and increasing the aggregate productivity level. Selection increases firmsâ€™ incentives to innovate, thereby leading to a higher aggregate productivity growth rate. Endogenous productivity growth boosts the selection gains from trade, leading to substantial welfare improvements. A calibrated version of the model shows that growth doubles the welfare gains obtainable in models with static firmâ€ level productivity.
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Working Paper: Trade, firm selection, and innovation: the competition channel (2016)
Working Paper: Trade, firm selection, and innovation: the competition channel (2013)
Working Paper: Trade, Firm selection, and innovation: the competition channel (2010)
Working Paper: Trade, Firm Selection, and Innovation: the Competition Channel (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:econjl:v:128:y:2018:i:608:p:189-229
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