Innovation and Trade with Heterogeneous Firms

39 Pages Posted: 8 Dec 2009

See all articles by Ngo Van Long

Ngo Van Long

McGill University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Horst Raff

Christian-Albrechts-Universitaet zu Kiel; CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

Frank Stähler

University of Tuebingen - Department of Economics; University of Adelaide - School of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 2009

Abstract

This paper examines how trade liberalization affects the innovation incentives of firms, and what this implies for industry productivity. For this purpose we develop a reciprocal dumping model of international trade with heterogeneous firms and endogenous R&D. Among the robust results that hold both in the short run when there is no entry, and in the long run under free entry are that trade liberalization increases (decreases) aggregate R&D for low (high) trade costs and increases expected industry productivity. The central results of the paper regarding firm and industry level R&D spending differ significantly from the case of homogeneous firms.

Keywords: international trade, firm heterogeneity, R&D, productivity, market structure

JEL Classification: F12, F15

Suggested Citation

Van Long, Ngo and Raff, Horst and Stähler, Frank, Innovation and Trade with Heterogeneous Firms (September 2009). CESifo Working Paper Series No. 2796, Available at SSRN: https://ssrn.com/abstract=1481135

Ngo Van Long

McGill University - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Horst Raff (Contact Author)

Christian-Albrechts-Universitaet zu Kiel ( email )

Institut fur Volkswirtschaftslehre
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Kiel, 24098
Germany
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HOME PAGE: http://www.wiso.uni-kiel.de/vwlinstitute/Raff/?page=raff

CESifo (Center for Economic Studies and Ifo Institute)

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Germany

Kiel Institute for the World Economy ( email )

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Frank Stähler

University of Tuebingen - Department of Economics ( email )

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D-72074 Tuebingen, 72074
Germany

HOME PAGE: http://www.frank-staehler.de

University of Adelaide - School of Economics ( email )

Adelaide SA, 5005
Australia

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Munich, DE-81679
Germany

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