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Trade and growth with heterogeneous firms

Baldwin, Robert and Robert-Nicoud, Frédéric (2006) Trade and growth with heterogeneous firms. CEPDP, 727. Centre for Economic Performance, London School of Economics and Political Science, London, UK. ISBN 0753020238

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Abstract

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.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 2006 the authors
Library of Congress subject classification: H Social Sciences > HF Commerce
H Social Sciences > HD Industries. Land use. Labor
Journal of Economic Literature Classification System: P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy
H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H32 - Firm
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Geography and Environment
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 727
Date Deposited: 23 Jul 2008 10:16
URL: http://eprints.lse.ac.uk/19856/

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