Work

Trapped Factors and China's Impact on Global Growth

Year: 2014

Type: article

Abstract: After a recent increase in Chinese import competition, European firms increased innovation. We present and rationalise these patterns using ‘trapped factors’ at the micro level within a stylised equilibrium model of product-cycle trade and growth. Trade integration of the magnitude observed between the OECD and low-wage nations as a whole can considerably increase the long-run growth rate and welfare. In the short run exposed firms devote trapped factors to increased innovation, leading both to increased innovation at these individual firms as well as to a small amount of extra transitional growth overall. China accounts for half of the dynamic trade gains.

Source: The Economic Journal

DOI: 10.1093/ej/ueaa086

Authors: Nicholas Bloom, Paul Romer, Stephen J Terry, John Van Reenen