Microeconomic flexibility, creative destruction and trade

Juan Blyde and Jose Pineda ()

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate whether greater microeconomic flexibility facilitates the process of creative destruction in the context of new trade models with heterogeneous firms (Bernard et al., 2003 and Melitz, 2003). In these models, freer trade increases aggregate productivity because high-efficiency plants expand through exporting and low-efficiency plants exit the market. However, factor reallocation could be negatively affected by the presence of microeconomic frictions. We use these insights of the theory to analyze whether a reduction in trade costs increases the probability of becoming an exporter relatively more in industries with greater microeconomic flexibility and whether plant exit driven by trade costs declines is more likely in industries with lower frictions. Using plant level data from Venezuela, we report results supporting these predictions.

Keywords: Trade costs; microeconomic frictions; resource reallocation (search for similar items in EconPapers)
JEL-codes: F13 F14 L1 O12 (search for similar items in EconPapers)
Date: 2010-01
New Economics Papers: this item is included in nep-int
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Related works:
Working Paper: Microeconomic Flexibility, Creative Destruction and Trade (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:21317

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