Catching Up or Pulling Away: Intra-Industry Trade,Productivity Gaps and Heterogeneous Firms |
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Authors: | Rod?Falvey Email author" target="_blank">David?GreenawayEmail author Zhihong?Yu |
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Institution: | (1) School of Business, Bond University, Gold Coast, Australia, UK;(2) School of Economics, University of Nottingham, Nottingham, England, UK |
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Abstract: | In this paper we develop a heterogeneous firm, intra-industry trade model in which countries are asymmetric in both technology
and size. In the trading equilibrium, the industry productivity levels countries are jointly determined by the technology
gap and trade barriers. We find that the (exogenous) technological gap is a key determinant of the size and direction of the
intra-industry resource reallocation introduced by trade. Most importantly, the effect of trade on the (endogenous) productivity
gap could be non monotonic over time. In the short-run, where the number of incumbents cannot adjust to trade, the effect
of import competition dominates and the productivity gap between countries is closed as domestic firms in the laggard country
face tougher competition from leading country exporters. However, in the long run when entry is possible, the effect of the
increased export opportunities in the leading country dominates and the productivity gap is widened as a consequence of entry
in the technological leader. |
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Keywords: | |
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