INTERNATIONAL TRADE AND INDUSTRIAL DYNAMICS* |
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| Authors: | Josh Ederington Phillip McCalman |
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| Affiliation: | 1. University of Kentucky, U.S.A.;2. University of California, Santa Cruz, U.S.A.;3. This article previously circulated under the title “Shaking All Over? International Trade and Industrial Dynamics.” Numerous individuals provided comments and suggestions that improved this article. We are particularly indebted to Goerg G?tz, Jenny Minier, and three anonymous referees for useful suggestions and comments. We would also like to thank seminar participants at the University of British Columbia, University of California‐Berkeley, University of California‐Santa Cruz, University of California‐San Diego, Deakin University, Georgetown University, Latrobe University, London School of Economics, University of Melbourne, Princeton University, Southern Methodist University, Sydney University, University of Virginia, the World Bank, CEPR‐ERWIT, and NBER‐UCR. Please address correspondence to: J. Ederington, Department of Economics, University of Kentucky, Lexington, KY 40506, U.S.A. Phone: 859‐257‐1588. E‐mail: . |
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| Abstract: | In this article, industrial evolution is driven by endogenous technology choices of firms, generating a rich environment that includes the possibility of a dramatic shakeout. The likelihood, magnitude, and timing of this shakeout are characterized and depend not only on the size of an innovation but also on cost structure. In this setting, trade liberalization reduces the likelihood of a shakeout, resulting in more stable industrial structures. However, when shakeouts arise in global markets, the distribution of exits can vary widely across countries. Furthermore, conditions exist where a shakeout occurs in a closed economy but not in an open economy. |
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