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Asymmetric trade liberalization, sector heterogeneity and Innovation

Author

Listed:
  • Navas, Antonio

    (Departamento de Fundamentos del Análisis Económico, Universidad de Alicante.)

Abstract
Innovation, mark-ups and the degree of trade openness vary substantially across sectors. This paper builds a multi-sector endogenous growth model to study the influence that asymmetric trade liberalization and sectorial differences in the degree of product market competition has on the effect of trade openness on R&D investments at a firm level. I find that differences in the degree of competition generate large differences on firm innovative response to trade liberalization. A movement from autarky to free trade promotes innovation and productivity growth in those sectors which are initially less competitive. However, when the initial tariff level is common across sectors, a homogeneous tariff reduction promotes innovation in those sectors which are initially more competitive. The paper suggests that trade liberalization could be a source of industry productivity divergence: firms that are located in industries with greater exposure to foreign trade, invest a greater amount in R&D contributing to industry productivity growth. Finally the paper finds that these asymmetries generate important reallocative effects that contribute to enlarge these differences.

Suggested Citation

  • Navas, Antonio, 2012. "Asymmetric trade liberalization, sector heterogeneity and Innovation," Working Papers in Economic Theory 2012/05, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    • Handle: RePEc:uam:wpaper:201205
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    References listed on IDEAS

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    More about this item

    Keywords

    Sectorial productivity; international trade; innovation.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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