Innovation and the Elasticity of Trade Volumes to Tariff Reductions

Loris Rubini

MPRA Paper from University Library of Munich, Germany

Abstract: I study the implications of endogenous productivity choices ("innovation") on the effects of trade liberalization. I find that a model with innovation generates an elasticity of trade volumes to tariff reductions that is fifty percent larger than models without innovation, and consistent in magnitude to empirical estimates. To show this, I develop a new model of international trade with innovation, and calibrate it to data on Canada and the United States before the Free Trade Agreement. Feeding into the calibrated model the tariff drop that resulted from the agreement, the increase in the trade volumes is similar to that observed in the data. Without innovation, the change in trade volumes is considerably lower, and similar in magnitude to what existing models without innovation have found.

Keywords: innovation; trade liberalization; trade elasticity; international trade (search for similar items in EconPapers)
JEL-codes: F12 F41 O31 (search for similar items in EconPapers)
Date: 2009-12-17
New Economics Papers: this item is included in nep-ino and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Innovation and the Elasticity of Trade Volumes to Tariff Reductions (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:21484

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