Equilibrium Technology Diffusion, Trade, and Growth
We study how opening to trade affects economic growth in a model where heterogeneous firms can choose to adopt a new technology already in use by other firms. We characterize the growth rate using summary statistics of the profit distribution—the ratio of profits between the average and marginal adopting firm. Opening to trade increases the spread in profits through increased export opportunities and foreign competition, induces more rapid technology adoption, and generates faster growth. Quantitatively, opening to trade yields large increases in growth, but welfare effects are muted due to loss of variety and reallocation of labor away from production.
Journal of Economic Literature (JEL) Classification Codes: