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

Sampson, Thomas (2016) Dynamic selection: an idea flows theory of entry, trade and growth. Quarterly Journal of Economics, 131 (1). pp. 315-380. ISSN 0033-5533

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Identification Number: 10.1093/qje/qjv032

Abstract

This paper develops an idea flows theory of trade and growth with heterogeneous firms. Entrants learn from incumbent firms and the diffusion technology is such that learning depends not on the frontier technology, but on the entire distribution of productivity. By shifting the productivity distribution upwards, selection causes technology diffusion and in equilibrium this dynamic selection process leads to endogenous growth without scale effects. On the balanced growth path, the productivity distribution is a traveling wave with a lower bound that increases over time. The free entry condition implies trade liberalization must increase the dynamic selection rate to offset the profits from new export opportunities. Consequently, trade integration raises long-run growth. Dynamic selection is a new source of gains from trade not found when firms are homogeneous. Calibrating the model implies dynamic selection approximately triples the gains from trade compared to heterogeneous firm economies with static steady states.

Item Type: Article
Official URL: http://qje.oxfordjournals.org/
Additional Information: © 2015 The Author
Divisions: Economics
Subjects: H Social Sciences > HC Economic History and Conditions
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 > O3 - Technological Change; Research and Development > O33 - Technological Change: Choices and Consequences; Diffusion Processes
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
Date Deposited: 03 Jul 2015 14:54
Last Modified: 20 Jul 2019 02:07
Projects: 613504
Funders: European Union’s Seventh Framework Programme
URI: http://eprints.lse.ac.uk/id/eprint/62623

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