Innovation and Trade with Heterogeneous Firms

By Ngo Van Long, Horst Raff, Frank Stähler. Social Science Research Network, 2011

151 citations recorded by the source corpus.

This paper examines how trade liberalization affects the innovation incentives of firms, and what this implies for industry productivity. For this purpose we develop a reciprocal dumping model of international trade with heterogeneous firms and endogenous R&D. Among the robust results that hold both in the short run when there is no entry, and in the long run under free entry are that trade liberalization increases (decreases) aggregate R&D for low (high) trade costs and increases expected industry productivity. The central results of the paper regarding firm and industry level R&D spending differ significantly from the case of homogeneous firms.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/240854507ec4785f756bc2f712d602435f72da74