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Technology Diffusion through Trade with Heterogeneous Firms

Abstract

I investigate the long-run implications of trade and technology di®usion through trade, when ¯rms are heterogeneous and trade is costly. The paper integrates ¯rm heterogeneity and trade into product innovation growth models from endogenous growth theory. Two speci¯ca- tions of the R&D process are considered. In the ¯rst, R&D uses labor and intermediate goods; in the second, it uses labor and available technology. I ¯nd that under both speci¯cations, exposure to trade increases average productivity. Furthermore, under the ¯rst speci¯cation exposure to trade always has a positive e®ect on economic growth, while it has an ambiguous e®ect on growth under the second.

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