The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity: A Comment

Richard Baldwin and Frederic Robert-Nicoud

No 4634, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Melitz (2003) demonstrates that greater trade openness raises industry productivity via a selection effect and via a production re-allocation effect. Our comment points out that the set-up assumed in the Melitz model displays a trade off between static and dynamic efficiency gains. That is, although freer trade improves industry productivity in a level sense, it harms it in a growth sense. To make this point as simply as possible, we introduce a slight modification to the model that endogenises the growth rate of industry productivity and we show that liberalization slows growth.

Keywords: Trade liberalization; Endogenous growth; Heterogenous firms; Dynamic versus static efficiency (search for similar items in EconPapers)
JEL-codes: H32 P16 (search for similar items in EconPapers)
Date: 2004-09
New Economics Papers: this item is included in nep-pbe
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Working Paper: The Impact of Trade on Intraindustry Reallocation and Aggregate Industry Productivity: A Comment (2004)
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