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The Exporter and Productivity Dynamics: The Effect of Trade Liberalization

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  • Kazuma Inagaki

Abstract

This paper studies how investment in R&D and export technology amplifies the welfare gains from trade liberalization. I develop a dynamic heterogeneous firm international trade model with investment in productivity-enhancing R&D and export technology. I find that R&D investment combined with a dynamic export technology enhances the welfare gains from trade liberalization. I quantitatively demonstrate that the welfare gain from trade liberalization in the dynamic trade model with elastic R&D is above 30% higher than that with inelastic R&D. By contrast, in a static trade model, the elasticity of R&D has a small impact on welfare gain. These findings suggest that static trade models may provide an even poorer approximation of dynamic trade models than we thought.

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  • Kazuma Inagaki, 2024. "The Exporter and Productivity Dynamics: The Effect of Trade Liberalization," ISER Discussion Paper 1261, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:1261
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