Equilibrium Technology Diffusion, Trade, and Growth

Abstract

We study how opening to trade affects economic growth in a model where heterogeneous firms can adopt new technologies already in use by other firms in their home country. We characterize the growth rate using a summary statistic of the profit distribution—the mean-min ratio. Opening to trade increases the profit spread through increased export opportunities and foreign competition, induces more rapid technology adoption, and generates faster growth. Quantitatively, these forces produce large welfare gains from trade by increasing an inefficiently low rate of technology adoption and economic growth.