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Trapped factors and China’s impact on global growth

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  • Bloom, Nick
  • Romer, Paul
  • Terry, Stephen
  • Van Reenen, John

Abstract

After a recent increase in Chinese import competition, European firms increased innovation. We present and rationalise these patterns using “trapped factors” at the micro level within a stylised equilibrium model of product-cycle trade and growth. Trade integration of the magnitude observed between the OECD and low-wage nations as a whole can considerably increase the long-run growth rate and welfare. In the short-run exposed firms devote trapped factors to increased innovation, leading both to increased innovation at these individual firms as well as to a small amount of extra transitional growth overall. China accounts for half of the dynamic trade gains

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  • Bloom, Nick & Romer, Paul & Terry, Stephen & Van Reenen, John, 2020. "Trapped factors and China’s impact on global growth," LSE Research Online Documents on Economics 105013, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:105013
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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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