Technology Diffusion through Trade with Heterogeneous Firms

I investigate the long-run implications of trade and technology di�usion through trade, when �rms are heterogeneous and trade is costly. The paper integrates �rm heterogeneity and trade into product innovation growth models from endogenous growth theory. Two speci�ca- tions of the R&D process are considered. In the �rst, R&D uses labor and intermediate goods; in the second, it uses labor and available technology. I �nd that under both speci�cations, exposure to trade increases average productivity. Furthermore, under the �rst speci�cation exposure to trade always has a positive e�ect on economic growth, while it has an ambiguous e�ect on growth under the second.