The Effects of International Trade on Resource Misallocation: Trade Partner Matters (Replaced by CentER DP 2012-046)

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Abstract

This paper suggests that contingent on the productivity level of the trade partner; international trade may create resource misallocation in less productive countries. It theoretically shows how productivity spillovers induced by trade with more productive countries and heterogeneity in pro- ductivity distributions across sectors lead to asymmetric pro-competitive effects, which in turn result in misallocation. It also presents robust empirical evidence supporting the model predictions by showing that trade with more productive regions as a share of purchasing power parity (PPP) GDP (1) increases economy wide markup variation, (2) raises mean sectoral productivity, and (3) decreases productivity dispersion within 4-digit sectors, only in less productive countries.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Number of pages42
Volume2011-125
Publication statusPublished - 2011

Publication series

NameCentER Discussion Paper
Volume2011-125

Keywords

  • International trade
  • knowledge spillovers
  • firm size
  • misallocation

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