Project Management

Trade Costs, Resource Reallocation And Productivity In Developing Countries

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Executive Summary

An increasing body of evidence indicates that an important share of aggregate productivity growth, in both developed and developing countries, arises from the reallocation of resources across plants of different productivity levels. New trade models with heterogeneous firms (Bernard et al., 2003; Melitz, 2003) suggest that international trade plays an important role in this reallocative process. Focusing on a developing country, Chile, the authors use explicit measures of trade costs to explore the existence of the channels suggested by these new trade models.

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