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Trade Liberalization and Heterogeneous Technology Investments
Author(s) -
Bas Maria,
Ledezma Ivan
Publication year - 2015
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12189
Subject(s) - economics , incentive , productivity , liberalization , international economics , free trade , investment (military) , international trade , distribution (mathematics) , trade barrier , industrial organization , microeconomics , market economy , macroeconomics , law , mathematical analysis , mathematics , politics , political science
We propose a trade model where heterogeneous firms decide on a productivity‐enhancing technology investment. The model analyzes the impact of multilateral trade liberalization on firm‐ and industry‐level productivity. Freer trade increases the incentives to invest in technology by raising export profits. It also dampens these incentives, however, as profits stemming from domestic sales are reduced. Only exporters benefit from the former positive effect. The shape of the distribution of efficiency draws, the level of trade costs and the technology intensity of the industry are key elements removing the ambiguities regarding the net impact of trade liberalization.