Working Paper: CEPR ID: DP4965
Authors: Richard Baldwin; Frédéric Robert-Nicoud
Abstract: This paper explores the impact of trade on growth when firms are heterogeneous. Our findings can be viewed as relevant to the trade and growth literature on one hand and the heterogeneous-firms trade theory on the other. Our main finding ? that freer trade is both anti-growth and welfare worsening from a purely dynamic perspective ? contrasts with most findings in the endogenous growth literature. We also show that market-entry costs are anti-growth, but heterogeneity per se is pro-growth. As concerns the heterogeneous-firms literature our main finding is a static-vs.-dynamic trade-off in terms of productivity gains. Freer trade raises measured productivity in a level sense but slows measured productivity growth.
Keywords: Dynamic versus static efficiency; Heterogeneous firms and trade; Endogenous growth
JEL Codes: H32; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Freer trade (F19) | decreased growth (O40) |
| Freer trade (F19) | decreased welfare (I30) |
| Market-entry costs (L11) | decreased growth (O40) |
| Heterogeneity among firms (L25) | increased growth (O40) |
| Freer trade (F19) | increased measured productivity levels (O49) |
| Increased measured productivity levels (O49) | decreased productivity growth (O49) |
| Freer trade (F19) | impaired dynamic productivity growth (O49) |