Trade and growth with heterogeneous firms
By: Richard E. Baldwin and Frédéric Robert-Nicoud
Contributors: Robert-Nicoud, Frédéric; London School of Economics and Political Science. Centre for Economic Performance
Series: CEP discussion paper -- no. 727
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Published: 2006
Place of publication: London
Language: eng
Format: [electronic resource] /
Description: This paper explores the impact of trade on growth when firms are heterogeneous. We find that greater openness produces anti-and pro-growth effects. The Melitz-model selection effects raises the expected cost of introducing a new variety and this tends to slow the rate of new-variety introduction and hence growth. The pro-growth effect stems from the impact that freer trade has on the marginal cost of innovating. The balance of the two effects is ambiguous with the sign depending upon the exact nature of the innovation technology and its connection to international trade in goods and ideas. We consider five special cases (these include the Grossman-Helpman, the Coe-Helpman and Rivera-Batiz-Romer models) two of which suggest that trade harms growth; the others predicting the opposite.
Notes: Title from PDF file (viewed on Sept. 26, 2006).

"June 2006."

Includes bibliographical references.

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