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Trade Liberalization and Productivity Growth

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  • Segerstrom, Paul
  • Gustafsson, Peter

Abstract

This paper presents a trade model with firm-level productivity differences and R&D-driven growth. Trade liberalization causes the least productive firms to exit but also slows the development of new products. The overall effect on productivity growth depends on the size of intertemporal knowledge spillovers in R&D. When these spillovers are relatively weak, then trade liberalization promotes productivity growth in the short run and makes consumers better off in the long run. However, when these spillovers are relatively strong, then trade liberalization retards productivity growth in the short run and makes consumers worse off in the long run.

Suggested Citation

  • Segerstrom, Paul & Gustafsson, Peter, 2006. "Trade Liberalization and Productivity Growth," CEPR Discussion Papers 5894, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5894
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    More about this item

    Keywords

    International trade; Trade liberalization; Productivity growth; Heterogenous firms; Endogenous fimrs;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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