Innovation, Firm Dynamics, and International Trade

55 Pages Posted: 24 Aug 2007 Last revised: 1 Jun 2022

See all articles by Andrew Atkeson

Andrew Atkeson

University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER)

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 2007

Abstract

We present a general equilibrium model of the decisions of firms to innovate and to engage in international trade. We use the model to analyze the impact of a reduction in international trade costs on firms' process and product innovative activity. We first show analytically that if all firms export with equal intensity, then a reduction in international trade costs has no impact at all, in steady-state, on firms' investments in process innovation. We then show that if only a subset of firms export, a decline in marginal trade costs raises process innovation in exporting firms relative to that of non-exporting firms. This reallocation of process innovation reinforces existing patterns of comparative advantage, and leads to an amplified response of trade volumes and output over time. In a quantitative version of the model, we show that the increase in process innovation is largely offset by a decline in product innovation. We find that, even if process innovation is very elastic and leads to a large dynamic response of trade, output, consumption, and the firm size distribution, the dynamic welfare gains are very similar to those in a model with inelastic process innovation.

Suggested Citation

Atkeson, Andrew G. and Burstein, Ariel T., Innovation, Firm Dynamics, and International Trade (August 2007). NBER Working Paper No. w13326, Available at SSRN: https://ssrn.com/abstract=1008820

Andrew G. Atkeson (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Bunche Hall 8365
Los Angeles, CA 90095-1477
United States
310-206-6732 (Phone)
310-825-9528 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
76
Abstract Views
1,971
rank
423,302
PlumX Metrics