Working Paper: NBER ID: w12949
Authors: Svetlana Demidova; Kala Krishna
Abstract: This paper shows that the results of Venables (1987) depend critically on the assumption that there are no fixed costs of trade. The introduction of fixed costs of exporting, while making the model more consistent with the empirical evidence, leads to the opposite conclusion that technological progress in one country cannot harm the welfare of its trading partner. However, the results can be obtained in a richer setting with heterogeneous firms.
Keywords: technological progress; fixed costs of exporting
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technological progress in one country (O57) | Welfare of its trading partner (F10) |
| Introduction of fixed costs of exporting (F10) | Welfare of its trading partner (F10) |
| Introduction of fixed costs of exporting (F10) | Technological progress in one country cannot harm welfare of its trading partner (O57) |