Trade and Growth with Heterogenous Firms

Richard Baldwin and Frederic Robert-Nicoud

No 5563, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper explores the impact of trade on growth when firms are heterogeneous. We find that greater openness produces anti-and pro-growth effects. The Melitz-model selection effects raises the expected cost of introducing a new variety and this tends to slow the rate of new-variety introduction and hence growth. The pro-growth effect stems from the impact that freer trade has on the marginal cost of innovating. The balance of the two effects is ambiguous with the sign depending upon the exact nature of the innovation technology and its connection to international trade in goods and ideas. We consider five special cases (these include the Grossman-Helpman, the Coe-Helpman and Rivera-Batiz-Romer models) two of which suggest that trade harms growth; the others predicting the opposite.

Keywords: Trade and endogenous growth; Heterogeneous firms; Dynamic versus static efficiency (search for similar items in EconPapers)
JEL-codes: F15 F43 (search for similar items in EconPapers)
Date: 2006-03
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (26)

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Related works:
Journal Article: Trade and growth with heterogeneous firms (2008)
Working Paper: Trade and Growth with Heterogeneous Firms (2006)
Working Paper: Trade and growth with heterogeneous firms (2006)
Working Paper: Trade and Growth with Heterogenous Firms (2006)
Working Paper: Trade and Growth with Heterogeneous Firms (2005)
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