Catching Up or Pulling Away: Intra-Industry Trade, Productivity Gaps and Heterogeneous Firms

Rod Falvey, David Greenaway, Zhihong Yu

Research output: Contribution to journalArticleResearchpeer-review

5 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)17-38
Number of pages22
JournalOpen Economies Review
Volume22
Issue number1
DOIs
Publication statusPublished - 2011

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Catching-up
Productivity gap
Intra-industry trade
Heterogeneous firms
Industry
Short-run
Trade barriers
Resources
Technological gap
Technology gap
Domestic firms
Exporters
Reallocation
Import competition
Productivity
Incumbents

Cite this

Falvey, Rod ; Greenaway, David ; Yu, Zhihong. / Catching Up or Pulling Away : Intra-Industry Trade, Productivity Gaps and Heterogeneous Firms. In: Open Economies Review. 2011 ; Vol. 22, No. 1. pp. 17-38.
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Catching Up or Pulling Away : Intra-Industry Trade, Productivity Gaps and Heterogeneous Firms. / Falvey, Rod; Greenaway, David; Yu, Zhihong.

In: Open Economies Review, Vol. 22, No. 1, 2011, p. 17-38.

Research output: Contribution to journalArticleResearchpeer-review

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