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Presentation
Catching up or pulling away: Intra-industry trade, productivity gaps and heterogeneous firms
Open economies review
  • Rod Falvey, Bond University
  • David Greenaway, University of Nottingham
  • Zhihong Yu, University of Nottingham
Date of this Version
1-1-2011
Document Type
Journal Article
Publication Details

Citation only.

Falvey, R., Greenaway, D., & Yu, Z. (2011). Catching up or pulling away: Intra-industry trade, productivity gaps and heterogeneous firms. Open economies review, 22(1), 17-38.

Access the publisher's website.

2011 HERDC submission. FoR code: 140210

© Copyright Springer Science+Business Media, LLC, 2010

Abstract
In this paper we develop a heterogeneous firm, intra-industry trade model in which countries are asymmetric in both technology and size. In the trading equilibrium, the industry productivity levels countries are jointly determined by the technology gap and trade barriers. We find that the (exogenous) technological gap is a key determinant of the size and direction of the intra-industry resource reallocation introduced by trade. Most importantly, the effect of trade on the (endogenous) productivity gap could be non monotonic over time. In the short-run, where the number of incumbents cannot adjust to trade, the effect of import competition dominates and the productivity gap between countries is closed as domestic firms in the laggard country face tougher competition from leading country exporters. However, in the long run when entry is possible, the effect of the increased export opportunities in the leading country dominates and the productivity gap is widened as a consequence of entry in the technological leader.
Citation Information
Rod Falvey, David Greenaway and Zhihong Yu. "Catching up or pulling away: Intra-industry trade, productivity gaps and heterogeneous firms" Open economies review Vol. 22 Iss. 1 (2011) p. 17 - 38 ISSN: 0923-7992
Available at: http://works.bepress.com/rodney_falvey/5/