Tech & Work

Trade With R&D Costs To Entering Foreign Markets

Date Added: Dec 2010
Format: PDF

In this paper, the author presents a quality ladders endogenous growth model where firms differ in their productivities. The author studies the effect openness to trade has on firm productivity and firm turnover. Most theoretical papers in this literature assume an exogenous firm turnover rate. In this paper, the firm turnover rate is endogenously determined and in line with the empirical evidence, it depends on variable costs to trade. The paper is inspired by the theoretical work of Melitz (2003) and obtains Melitz-type results but with a different set of assumptions. In particular, the author assumes that firms invest in learning how to become exporters.