Publication: Technology adoption and the selection effect of trade
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2007-08
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Abstract
The reallocation of output across plants and the productivity growth at individual plants are both
important sources of productivity growth at the industry level. Recent evidence has shown that
trade liberalization is related to both effects. While a trade model with firm heterogeneity can
account for the first effect, it can not explain the second effect. We add to this model the option
for firms to costly adopt more productive technologies and show that plant productivity actually
rises in response to lower trade costs. Following trade liberalization, selection into exporting
raises the market share only for some exporters. Therefore, a greater scale of operation
amplifies their return from costly productivity-enhancement investments and leads a greater
proportion of them to implement a more innovative technology.
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International trade, Technology adoption, Productivity