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Shocks, economic policy and technology choice of heterogenous producers

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  • Hübler, Michael
  • Schwerhoff, Gregor

Abstract

This article introduces a new Melitz-type model of heterogeneous producers with decreasing returns to scale and different productivities. Different to previous models, it describes smallholder producers in rural areas of developing countries in the context of environment and development economics. The model enables a socially sensitive policy analysis considering poverty and distributional effects. In this model, the production input causes a negative environmental externality. External shocks, e.g., caused by climate change, and economic policies affect the producers' endogenous choice between market entry or exit and between simple or advanced technology. In the first step, various shocks and policies are analyzed theoretically. A novel type of the rebound effect (Jevons paradox) is identifed for the production input that occurs when market entry is incentivized by productivity improvements. In the second step, the model is calibrated by applying it to coffee production in rural Vietnam. The simulation results show that secondary effects of the shocks, such as employment effects, can be substantially larger than the original impact. The support of market entry or of the advanced technology creates adverse distributional effects.

Suggested Citation

  • Hübler, Michael & Schwerhoff, Gregor, 2019. "Shocks, economic policy and technology choice of heterogenous producers," Hannover Economic Papers (HEP) dp-655, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  • Handle: RePEc:han:dpaper:dp-655
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    File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-655.pdf
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    References listed on IDEAS

    as
    1. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
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    More about this item

    Keywords

    heterogeneous producers; technology choice; climate change; coffee; Vietnam;
    All these keywords.

    JEL classification:

    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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