Title
Trade and Firm Heterogeneity In A Quality-Ladder Model of Growth
Abstract
The present paper explores the effect of trade liberalization on the
level of productivity as well as the rate of productivity growth in an R&Dbased
model with heterogeneous firms. We introduce new and plausible
features that are absent in existing studies. First, technical progress
takes the form of continual quality improvement of products over time.
Second, firm entry and exit are endogenously determined due to creative
destruction of products traded. In this framework, we demonstrate that
a lower transport cost or export sunk cost unambiguously reallocates
resources from non-exporting industries to R&D as well as exporting
industries. This means that trade liberalization increases the level of
manufacturing productivity and the rate of technical progress. These
results are found to be robust in an extended model with population
growth without scale effects. In extensions of the basic model, we also
endogenize the ex ante distribution of firm heterogeneity and examine
the effect of R&D subsidies.
Tetsugen HARUYAMA
Graduate School of Economics, Kobe University
Laixun ZHAO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501
Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059