Journal Article

Innovation and Trade with Heterogeneous Firms


  • Long
  • N.V.
  • Raff
  • H.
  • Stähler
  • F.
Publication Date

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.


JEL Classification
F12, F13

Key Words

  • firm heterogeneity
  • international trade
  • Internationaler Handel
  • market structure
  • productivity
  • Produktivität
  • R&D