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Trade, productivity improvements and welfare: an endogenous market structure framework

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  • Montinari, Letizia

Abstract

In this paper, I investigate the welfare effects that developed countries experience after productivity improvements occur in their emerging trading partners, using a two-country model featuring pro-competitive effects of trade and asymmetries in technology. I model the technology advantage of the developed country, assuming that the productivity distribution its firms draw from stochastically dominates that of the emerging country. Calibrated to match aggregate and firm level statistics of the US economy, the model predicts that the country with better technology has a higher productivity cut-off level, higher average productivity and higher welfare. Productivity improvements in the emerging country generate selection and raise welfare everywhere, with both the selection effect and the positive welfare effect being stronger in the emerging country. Finally, trade liberalization is associated with more selection and higher welfare in both the developed and the emerging country. JEL Classification: F12, F62, O33, I31

Suggested Citation

  • Montinari, Letizia, 2013. "Trade, productivity improvements and welfare: an endogenous market structure framework," Working Paper Series 1624, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20131624
    Note: 2179697
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1624.pdf
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    Cited by:

    1. Octavian Șerban, 2022. "The Multilevel Knowledge Economy Pyramid Model as a Flexible Solution to Address the Impact of Adverse Events in the Economy," Sustainability, MDPI, vol. 14(19), pages 1-15, September.

    More about this item

    Keywords

    asymmetric countries; endogenous market structure; productivity improvements; welfare;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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