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Dynamic selection: an idea flows theory of entry, trade and growth

Sampson, Thomas (2014) Dynamic selection: an idea flows theory of entry, trade and growth. CEP Discussion Papers (CEPDP1288). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

This paper develops an idea flows theory of trade and growth with heterogeneous firms. New firms learn from incumbent firms, but the diffusion technology ensures entrants learn not only from frontier technologies, but from the entire technology distribution. By shifting the productivity distribution upwards, selection on productivity causes technology diffusion and this complementarity generates endogenous growth without scale effects. On the balanced growth path, the productivity distribution is a traveling wave with an increasing lower bound. Growth of the lower bound causes dynamic selection. Free entry mandates that trade liberalization increases the rates of technology diffusion and dynamic selection to offset the profits from new export opportunities. Consequently, trade integration raises long-run growth. The dynamic selection effect is a new source of gains from trade not found when firms are homogeneous. Calibrating the model implies that dynamic selection approximately triples the gains from trade relative to heterogeneous firm economies with static steady states.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/_new/publications/series.asp?...
Additional Information: © 2014 The Author
Divisions: Economics
Centre for Economic Performance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HF Commerce
JEL classification: F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models
Sets: Departments > Economics
Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 28 Nov 2014 16:56
Last Modified: 17 Dec 2019 00:57
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/60363

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