Working Paper: NBER ID: w26461
Authors: Changtai Hsieh; Peter J. Klenow; Ishan B. Nath
Abstract: In the wake of the U.S.-Canada Free Trade Agreement, both the U.S. and Canada experienced a sustained increase in job reallocation, including firms moving into exporting. The change involved big firms as much as small firms. To mimic these patterns,we formulate a model of innovation by both domestic and foreign firms. In the model, trade liberalization quickens the pace of creative destruction, thereby speeding the flow of technology across countries. The resulting dynamic gains from trade liberalization are an order of magnitude larger than the gains in a standard static model.
Keywords: creative destruction; trade liberalization; job reallocation; innovation; total factor productivity
JEL Codes: F11; F14; F43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lower Tariffs (F19) | Innovation Rates (O39) |
| Innovation Rates (O39) | Total Factor Productivity (TFP) Growth (O49) |
| Trade Liberalization (F13) | Dynamic Gains from Trade (F12) |
| Trade Liberalization (F13) | Job Reallocation (J62) |
| Trade Liberalization (F13) | Job Destruction (J63) |