Asymmetric trade liberalization, sector heterogeneity and Innovation

Antonio Navas ()

No 2012/05, Working Papers in Economic Theory from Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History)

Abstract: Innovation, mark-ups and the degree of trade openness vary substantially across sectors. This paper builds a multi-sector endogenous growth model to study the influence that asymmetric trade liberalization and sectorial differences in the degree of product market competition has on the effect of trade openness on R&D investments at a firm level. I find that differences in the degree of competition generate large differences on firm innovative response to trade liberalization. A movement from autarky to free trade promotes innovation and productivity growth in those sectors which are initially less competitive. However, when the initial tariff level is common across sectors, a homogeneous tariff reduction promotes innovation in those sectors which are initially more competitive. The paper suggests that trade liberalization could be a source of industry productivity divergence: firms that are located in industries with greater exposure to foreign trade, invest a greater amount in R&D contributing to industry productivity growth. Finally the paper finds that these asymmetries generate important reallocative effects that contribute to enlarge these differences.

Keywords: Sectorial productivity; international trade; innovation. (search for similar items in EconPapers)
JEL-codes: F12 O43 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2012-02
New Economics Papers: this item is included in nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Asymmetric Trade Liberalisation, Sector Heterogeneity and Innovation (2013)
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