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.
|Place of Publication||Tilburg|
|Number of pages||42|
|Publication status||Published - 2011|
|Name||CentER Discussion Paper|
- International trade
- knowledge spillovers
- firm size