Trade Liberalization and Heterogeneous Technology Investments
- Resource Type
- Authors
- Maria Bas; Ivan Ledezma
- Source
- Review of International Economics. 23:738-781
- Subject
- Economic integration
business.industry
Geography, Planning and Development
Distribution (economics)
ComputingMilieux_LEGALASPECTSOFCOMPUTING
International economics
International trade
Development
Investment (macroeconomics)
Trade cost
Incentive
Economics
business
Trade barrier
Productivity
Free trade
- Language
- ISSN
- 0965-7576
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.