Year: 2012
Type: report
Abstract: This paper proposes a trade model with heterogeneous firms that decide not just \nwhether and how much to export but also whether and how much to innovate. Incorporating both the extensive and intensive margins of trade and innovation leads to different possible equilibria. Depending on how costly trade is relative to innovation, medium-productivity firms may either export without innovating, innovate without exporting, do both or do neither. The impact of trade on aggregate productivity and welfare depends crucially on the equilibrium the economy is in. When lowering the variable costs of trade, the welfare effects arising from reallocating market shares across firms may be non-negligible, and when lowering the fixed cost of trade, aggregate productivity need not always increase. After calibrating the model to five European countries, we show that the different equilibria are plausible, and provide quantitative evidence that supports the predictions of our theory.
Author: Aranzazu Crespo
Institution: Universidad Carlos III de Madrid
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: green
Funder: European Commission
OpenAlex ID: W2116450474