Journal Article
Innovation and Trade with Heterogeneous Firms
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 aggregate R&D when trade costs are low and decreases R&D when trade costs are high. Expected industry productivity rises as trade costs fall.
Key Words
- firm heterogeneity
- international trade
- Internationaler Handel
- market structure
- productivity
- Produktivität
- R&D