The Impact of Trade on Intraindustry Reallocation and Aggregate Industry Productivity: A Comment

16 Pages Posted: 16 Sep 2004 Last revised: 16 Oct 2022

See all articles by Richard E. Baldwin

Richard E. Baldwin

University of Geneva - Graduate Institute of International Studies (HEI); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Frederic Robert-Nicoud

University of Geneva - Department of Political Economics; Centre for Economic Policy Research (CEPR)

Date Written: August 2004

Abstract

Melitz (2003) demonstrates that greater trade openness raises industry productivity via a selection effect and via a production re-allocation effect. Our comment points out that the set-up assumed in the Melitz model displays a trade off between static and dynamic efficiency gains. That is, although freer trade improves industry productivity in a level sense, it harms it in a growth sense. To make this point as simply as possible, we introduce a slight modification to the model that endogenises the growth rate of industry productivity and we show that liberalisation slows growth.

Suggested Citation

Baldwin, Richard E. and Robert-Nicoud, Frederic L., The Impact of Trade on Intraindustry Reallocation and Aggregate Industry Productivity: A Comment (August 2004). NBER Working Paper No. w10718, Available at SSRN: https://ssrn.com/abstract=583429

Richard E. Baldwin (Contact Author)

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

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HOME PAGE: http://www.hei.unige.ch/~baldwin/

Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

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Frederic L. Robert-Nicoud

University of Geneva - Department of Political Economics ( email )

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Geneva 4, CH-1211
Switzerland
+41 22 379 8272 (Phone)
+41 22 379 8293 (Fax)

HOME PAGE: http://www.unige.ch/ses/ecopo/staff/robert/home.html

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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