Endogenous firm heterogeneity and the dynamics of trade liberalization
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2008-03-01
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Journal of International Economics
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Melbourne Authors
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Economics
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Journal Article
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Ederington, J. & McCalman, P. (2008). Endogenous firm heterogeneity and the dynamics of trade liberalization. Journal of International Economics, 74 (2), pp.422-440. https://doi.org/10.1016/j.jinteco.2007.07.001.
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In this paper, we build a dynamic model with endogenous firm-level productivity that involves ex ante identical firms behaving differently in equilibrium. Heterogeneity arises in equilibrium as firms choose different dates to adopt a new technology. We investigate the effects of international trade on technological diffusion and show that trade has a generally positive impact on the equilibrium rate of adoption (and hence on firm-level productivity). In addition, the model can replicate the stylized fact that exporters are larger and more productive than non-exporters. Finally, we show how our model can be used to interpret the emerging empirical evidence on the firm-level productivity effects of CUSFTA.
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Economic Theory