Trade Liberalization, Technology Diffusion, and Productivity

Kishi, Keiichi and Okada, Keisuke (2018): Trade Liberalization, Technology Diffusion, and Productivity.

Abstract

This study develops the international trade theory of technology diffusion with heterogeneous firms. Each new entrant randomly searches for and meets incumbents and then adopts their existing technology. As in previous international trade models based on firm heterogeneity, trade liberalization induces the least productive firms to exit, and then the resources can be reallocated toward more productive firms. However, we show that this resource reallocation effect is mitigated by the entry of low-productive firms. Trade liberalization facilitates the diffusion of existing low-productive technologies to new entrants, which shifts the weight in the productivity distribution from the upper tail area to the area around the least productivity. Thus, some resources can be reallocated toward low-productive firms. In addition, trade liberalization reduces domestically produced varieties. Consequently, we show the non-monotonic relationship between trade liberalization and aggregate productivity.

• Item Type: MPRA Paper
• Language: English
• Keywords: International trade; Innovation; Productivity distribution
• Subjects: F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes

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