Growth, Trade, and Inequality

Grossman, Gene M.; Helpman, Elhanan

doi:10.3982/ecta14518

Cited by 107 publications

(58 citation statements)

References 29 publications

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“…This market size effect can be offset by an adverse competition effect: the successful innovators must share the market with foreign competitors. In Grossman and Helpman's () baseline economy these two effects exactly offset each other. Finally, recent papers have explored the role of trade in accelerating knowledge diffusion.…”

Section: Literature Reviewmentioning

confidence: 96%

“…Baldwin and Robert‐Nicoud (), introduce firm heterogeneity in an endogenous growth model of expanding product varieties (Romer, ) and find that the selection effect of trade on growth depends on the form of international knowledge spillovers. In a more general setup, with firm and worker heterogeneity, Grossman and Helpman () show that under an arbitrary (positive) pattern of international knowledge spillovers, open economies innovate and grow more than closed ones. In old and new endogenous growth models, lower trade barriers tend to increase market size, thereby increasing innovation.…”

Section: Literature Reviewmentioning

confidence: 99%

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Trade, Firm Selection and Innovation: The Competition Channel

Impullitti

Licandro

2017

Econ J

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We study the welfare gains from trade in an economy with heterogeneous firms, variable markups and endogenous growth. Variable markups arise from oligopolistic competition, and cost-reducing innovation is the engine of long-run growth. Trade liberalisation stiffens competition by reducing markups, generating tougher firm selection and increasing the aggregate productivity level. Selection increases firms' incentives to innovate, thereby leading to a higher aggregate productivity growth rate. Endogenous productivity growth boosts the selection gains from trade, leading to substantial welfare improvements. A calibrated version of the model shows that growth doubles the welfare gains obtainable in models with static firm-level productivity.If the gains from trade are small, is it worth facing the potentially disruptive distributional consequences of globalisation?1 Assessing the size and identifying the sources of gains from trade is a long-standing challenge for economists. In recent decades, a new line of research introducing firm heterogeneity in trade models has uncovered a new source of welfare gains. Trade-induced reallocations of market shares from low to highly productive firms within the same industries increase sectorial efficiency, leading to improvements in aggregate productivity and to potentially large welfare gains. However, selection also carries welfare losses that can possibly outweigh the gains: firms' exit has a negative effect on welfare by reducing the variety of goods available in the economy.Theoretical and quantitative analyses assessing the contribution of the selection margin have mainly featured market structures with perfect or monopolistic competition, focused on static models or on dynamic economies without long-run productivity growth. The goal of this article is to fill these gaps by providing a theory of trade with heterogeneous firms under oligopolistic competition and innovationdriven productivity growth. On the one hand, because of 'cross-hauling' of identical goods, oligopoly trade is potentially wasteful, therefore representing a more difficult environment in which to obtain welfare gains. On the other hand, trade reduces markups thereby generating pro-competitive effects which are absent in environments where firms' market power is constant. Moreover, innovation-driven growth can potentially magnify the gains from selection, as market share reallocations can affect not only the productivity level but also its growth rate. We show that the new gains due

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Section: Literature Reviewmentioning

confidence: 96%

Section: Literature Reviewmentioning

confidence: 99%

Trade, Firm Selection and Innovation: The Competition Channel

Impullitti

Licandro

2017

Econ J

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“… Some papers, including Yeaple () and more recently Grossman and Helpman (), trace productivity differences across firms to heterogeneity in ability across workers and managers. We follow the complementary approach that emphasises the role of differences in technology rather than ability. …”

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confidence: 99%

Betting On Exports: Trade and Endogenous Heterogeneity

Bonfiglioli

Crinò

Gancia

2017

The Economic Journal

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We study the determinants of firm-level heterogeneity in a model where innovation choices upon entry affect the variance of productivity draws. In equilibrium, productivity is Pareto distributed with a shape parameter that depends on industry-level characteristics. We show that export opportunities, by increasing the pay-offs in the tail, induce firms to invest in bigger projects with more dispersed outcomes. When more productive firms pay higher wages, trade amplifies wage dispersion by making firms more unequal. These results are consistent with how firm size, innovation and wage heterogeneity vary in a panel of US industries and states.

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“…For developed countries, the opposite is true. Grossman and Helpman () argue that knowledge sharing under globalisation makes innovation more efficient, leading to the expansion of the innovation sector and the rise of wages, as well as the increase of wages for highly skilled workers in the manufacturing sector. Timmer, Los, Stehrer, and De Vries () use World Input–Output Database (WIOD) data to examine the impact of the GVC division on employment in the EU and find that GVC division reduced overall employment, but increased the employment of highly skilled labour, resulting in unequal distribution effects.…”

Section: Literature Reviewmentioning

confidence: 99%

Does global value chain engagement improve firms' wages: Evidence from China

Xie

et al. 2019

World Economy

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This would imply that the welfare effect analysis of trade should shift towards intra-product trade. Accompanied by the recent burgeoning literature on measuring value-added trade, value creation and profit distribution among various stages in the GVC have attracted increasing attention, including research on the effects of intra-product trade on labour wages. Grossman and Rossi-Hansberg (2008) is the first study to explore the impact of outsourcing on wages, by developing an offshore outsourcing model and decomposing the economic impact of decreasing outsourcing costs into the productivity effect, relative price effect and labour supply effect. The productivity effect enhances the welfare level of low-skilled workers, while the relative price and labour supply effects suppress the welfare level of low-skilled workers. To the best of our knowledge, there is little theoretical and quantitative research on the wage effects of China's increasing engagement in the GVC, particularly at the firm level. Our analysis supplements this part with calculating firms' GVC embedment and then analysing the effect of the GVC embedment on firms' wage.This study uses the merged data of Chinese customs transaction-level trade database and Chinese Annual Survey of Industrial Firms database, covering the universe of Chinese exporters in the period 2000-06, to examine whether and how GVC engagement influences firms' wage.The main contributions of our research are as follows: (a) We innovatively examine whether and how a firm's GVC engagement affects firms' wages. Compared with previous studies, which analyse whether a firm enters the export market or not and how this affects wages, our study is more comprehensive by incorporating these aspects from the perspective of GVC. (b) Specifically, our transaction-level data allow us to measure GVC engagement at firm level over time, which complements the literature on the wage effect of the GVC at industry and aggregate levels (Costinot, Vogel, & Wang, 2012;Lopez Gonzalez, Kowalski, & Achard, 2015), and thereby minimise aggregation bias by giving expression to firm heterogeneity. (c) Finally, we examine the heterogeneous impact of a firm's GVC engagement by distinguishing different ownership and factor intensity.The rest of the paper proceeds as follows. Section 2 presents the theoretical analysis and hypotheses. Section 3 describes the empirical specification, data source and the measurements. Section 4 discusses the empirical results, and Section 5 presents an extended analysis. Section 6 is this paper's conclusion. |

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Growth, Trade, and Inequality

Cited by 107 publications

References 29 publications

Trade, Firm Selection and Innovation: The Competition Channel

Trade, Firm Selection and Innovation: The Competition Channel

Betting On Exports: Trade and Endogenous Heterogeneity

Does global value chain engagement improve firms' wages: Evidence from China

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