Export-Learning and FDI with Heterogeneous Firms

I present a dynamic general equilibrium model with heterogeneous firms that can innovate, learn how to export and then go on to become multinational firms. Entering the foreign market is a dynamic process where firms first learn how to export and then can learn how to adapt production to a low-wage location. In the model, innovation and international technology transfer are affected by both exporting and FDI which offers new insights about the effects of policy changes such as trade liberalization and intellectual property rights reform on consumer welfare. In particular, I disentangle the effects of such policy changes on reallocation of labor resources within regions: across activities (production, innovation, export-learning and adaption), across high-productivity and low-productivity firms, and within firms. I obtain higher rates of export-learning and FDI for high-productivity firms than for low-productivity firms. As a result, exporters are on average more productive than non-exporters, and multinational firms are on average more productive than exporters. In equilibrium, there are still some low-productivity exporters, some low-productivity multinational firms and some high-productivity non-exporters. Low-productivity firms export and engage in FDI but they are just not as successful in these activities as high-productivity firms.