Technology and the dynamics of comparative advantage

Antonio Navas ()

No 2015005, Working Papers from The University of Sheffield, Department of Economics

Abstract: This paper explores how trade openness affects both product and process innovation in a factor proportions model of trade and firm heterogeneity. Trade openness expands the profit opportunities of the most productive firms and expels the less efficient firms out of the market, making process innovation more attractive for the most productive firms in both industries. Incentives, however, are larger in the industry in which the country has the comparative advantage. Trade also increases the profits of prospective entrants leading to an increase in product innovation in the comparative advantage industry. In addition, I obtain a non-monotonic relationship between trade costs and a country's trade pattern: When the level of trade costs are high, a reduction in trade costs leads to an increase in process innovation in both industries, being stronger in the comparative advantage one; when the trade costs are low the effect is stronger in the comparative disadvantage one. This final result could rationalize recent empirical findings suggesting that in the last half century the Ricardian comparative advantage has become weaker over time.

Keywords: Innovation; Firm Heterogeneity; Comparative Advantage. (search for similar items in EconPapers)
JEL-codes: F12 F43 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2015-01
New Economics Papers: this item is included in nep-bec, nep-cse, nep-ino and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sheffield.ac.uk/economics/research/serps/articles/2015_005 First version, January 2015 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:shf:wpaper:2015005

Access Statistics for this paper

More papers in Working Papers from The University of Sheffield, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Mike Crabtree ().