Rubini, Loris (2009): Innovation and the Elasticity of Trade Volumes to Tariff Reductions.
Download (398kB) | Preview
I study the implications of endogenous productivity choices ("innovation") on the effects of trade liberalization. I find that a model with innovation generates an elasticity of trade volumes to tariff reductions that is fifty percent larger than models without innovation, and consistent in magnitude to empirical estimates. To show this, I develop a new model of international trade with innovation, and calibrate it to data on Canada and the United States before the Free Trade Agreement. Feeding into the calibrated model the tariff drop that resulted from the agreement, the increase in the trade volumes is similar to that observed in the data. Without innovation, the change in trade volumes is considerably lower, and similar in magnitude to what existing models without innovation have found.
|Item Type:||MPRA Paper|
|Original Title:||Innovation and the Elasticity of Trade Volumes to Tariff Reductions|
|Keywords:||innovation; trade liberalization; trade elasticity; international trade|
|Subjects:||F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives
|Depositing User:||Loris Rubini|
|Date Deposited:||18. Mar 2010 18:13|
|Last Modified:||12. Feb 2013 22:00|
Arkolakis, Costas, Svetlana Demidova, Peter J. Klenow, and Andres Rodriguez- Clare, “Endogenous Variety and the Gains from Trade,” American Economic Review, May 2008, 98 (2), 444–50.
Atkeson, Andrew and Ariel Burstein, “Innovation, Firm Dynamics, and International Trade,” 2009.
Aw, Bee Yan, Mark J. Roberts, and Daniel Yi Xu, “R&D Investments, Exporting, and the Evolution of Firm Productivity,” American Economic Review, May 2008, 98 (2), 451–56.
Backus, David K, Patrick J Kehoe, and Finn E Kydland, “Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?,” American Economic Review, March 1994, 84 (1), 84–103.
Balistreri, Edward J., Russell H. Hillberry, and Thomas F. Rutherford, “Trade and Welfare: Does Industrial Organization Matter?,” CER-ETH Economics working paper series 09/119, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich September 2009.
Bernard, Andrew B. and J. Bradford Jensen, “Exceptional exporter performance: cause, effect, or both?,” Journal of International Economics, February 1999, 47 (1), 1–25. Billingsley, Patrick, Probability and Measure, Wiley-Interscience, 1995.
Blonigen, Bruce A. and Wesley W. Wilson, “Explaining Armington: What Determines Substitutability Between Home and Foreign Goods?,” Canadian Journal of Economics, February 1999, 32 (1), 1–21.
Botero, Juan, Simeon Djankov, Rafael Porta, and Florencio C. Lopez-De-Silanes, “The Regulation of Labor,” The Quarterly Journal of Economics, November 2004, 119 (4), 1339–1382.
Bridgman, Benjamin, “Energy Prices and the Expansion of World Trade,” Review of Economic Dynamics, October 2008, 11 (4), 904–916.
Broda, Christian and David E. Weinstein, “Globalization and the Gains from Variety,” The Quarterly Journal of Economics, May 2006, 121 (2), 541–585.
Bustos, Paula, “Trade Liberalization, Exports and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinean Firms,” 2009.
Chandima Dedigama, Anne, International Property Rights Index 2009 Report, Property Rights Alliance, 2009.
Chaney, Thomas, “Distorted Gravity: The Intensive and Extensive Margins of Interna- tional Trade,” American Economic Review, September 2008, 98 (4), 1707–21.
Clausing, Kimberly A., “Trade Creation and Trade Diversion in the Canada - United States Free Trade Agreement,” Canadian Journal of Economics, August 2001, 34 (3), 677–696.
Clerides, Sofronis K., Saul Lach, and James R. Tybout, “Is Learning By Export- ing Important? Micro-Dynamic Evidence From Colombia, Mexico, And Morocco,” The Quarterly Journal of Economics, August 1998, 113 (3), 903–947.
Constantini, James and Marc Melitz, “The Dynamics of Firm-Level Adjustment to Trade Liberalization,” 2007.
De Loecker, Jan, “Do exports generate higher productivity? Evidence from Slovenia,” Journal of International Economics, September 2007, 73 (1), 69–98.
Dixit, Avinash K. and Joseph E. Stiglitz, “Monopolistic Competition and Optimum Product Diversity,” American Economic Review, June 1977, 67 (3), 297–308.
Djankov, Simeon, Rafael La Porta, Florencio Lopez-De-Silanes, and Andrei Shleifer, “The Regulation Of Entry,” The Quarterly Journal of Economics, February 2002, 117 (1), 1–37.
Ederington, Josh and Phillip McCalman, “Endogenous firm heterogeneity and the dynamics of trade liberalization,” Journal of International Economics, March 2008, 74 (2), 422–440.
Eslava, Marcela, John C. Haltiwanger, Adriana D. Kugler, and Maurice Kugler, “Trade Reforms and Market Selection: Evidence from Manufacturing Plants in Colombia,” April 2009.
Feenstra, Robert C, “New Product Varieties and the Measurement of International Prices,” American Economic Review, March 1994, 84 (1), 157–77.
Gibson, Mark, “Trade Liberalization, Reallocation, and Productivity,” 2006. Havrylyshyn, Oli, “Trade Policy and Productivity Gains in Developing Countries: A Sur- vey of the Literature,” World Bank Research Observer, January 1990, 5 (1), 1–24.
Head, Keith and John Ries, “Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade,” American Economic Review, September 2001, 91 (4), 858–876.
Heckman, James J. and Carmen Pag ́es, Law and Employment: Lessons from Latin American and the Caribbean, National Bureau of Economic Research, Inc, January 2004.
Helpman, Elhanan and Oleg Itskhoki, “Labor Market Rigidities, Trade and Unemployment,” September 2007.
Herrendorf, Berthold and Akos Valentinyi, “Measuring Factor Inc.ome Shares at the Sector Level - A Primer,” April 2007.
Kambourov, Gueorgui, “Labour Market Regulations and the Sectoral Reallocation of Workers: The Case of Trade Reforms,” Review of Economic Studies, October 2009, 76 (4), 1321–1358.
Kehoe, Timothy J., “An Evaluation of the Performance of Applied General Equilibrium Models of the Impact of NAFTA,” March 2003.
Kehoe, Timothy J., and Kim J. Ruhl, “Are Shocks to the Terms of Trade Shocks to Productivity?,” Review of Economic Dynamics, October 2008, 11 (4), 804–819.
Kostevc, Crt and Joze Damijan, “Causal Link between Exporting and Innovation Ac- tivity. Evidence from Slovenian Firms,” 2008.
Krugman, Paul, “Scale Economies, Product Differentiation, and the Pattern of Trade,” American Economic Review, December 1980, 70 (5), 950–59.
Leal, Julio, “Effects of Incomplete Enforcement on Labor Productivity,” 2009.
Lileeva, Alla, “Trade Liberalization and Productivity Dynamics,” Canadian Journal of Economics, May 2008, 41 (2), 360–390. and Daniel Trefler, “Does Improved Market Access Raise Plant-Level Productivity?,” Forthcoming in Quarterly Journal of Economics, 2009.
Luttmer, Erzo G. J., “Selection, Growth, and the Size Distribution of Firms,” The Quar- terly Journal of Economics, August 2007, 122 (3), 1103–1144.
Melitz, Marc J., “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity,” Econometrica, November 2003, 71 (6), 1695–1725.
Reinert, Kenneth A. and David W. Roland-Holst, “Armington elasticities for United States manufacturing sectors,” Journal of Policy Modeling, October 1992, 14 (5), 631–639.
Rubini, Loris, “Accounting for the Long-Run and Short-Run Trade Elasticities,” 2009.
Ruhl, Kim J., “The International Elasticity Puzzle,” 2008.
Trefler, Daniel, “The Long and Short of the Canada- U.S. Free Trade Agreement,” Amer- ican Economic Review, September 2004, 94 (4), 870–895.
Van Biesebroeck, Johannes, “Exporting raises productivity in sub-Saharan African man- ufacturing firms,” Journal of International Economics, December 2005, 67 (2), 373–391.
Yeaple, Stephen Ross, “A simple model of firm heterogeneity, international trade, and wages,” Journal of International Economics, January 2005, 65 (1), 1–20.
Yi, Kei-Mu, “Can Vertical Specialization Explain the Growth of World Trade?,” Journal of Political Economy, February 2003, 111 (1), 52–102.