Productivity growth from an international trade perspective

Abstract

This paper presents a framework to assess the relative importance of three key sources of productivity growth that international trade research focuses on: (1) interindustry specialization; (2) intra-industry reallocation of resources across heterogeneous firms; and (3) technological progress. We illustrate how to apply the framework by deciphering the productivity dynamics of the Swiss manufacturing industry. We find that intra-industry reallocations are the most important source of growth in aggregate total factor productivity, spurred by the productivity growth of large, incumbent firms and the entry of new firms. Inter-industry specialization and general technological progress, nevertheless, remain important supplementary sources of productivity growth. | IN TRO DUCT IO NProductivity growth is a driving force for economic welfare, but what drives productivity? (Neo-) Classical trade models underscore the role of specialization across industries in fostering productivity, while the "new" trade theory highlights the impact of reallocations of resources among firms within industries. A third strand of the trade literature emphasizes the impact of trade on productivityenhancing R&D. 1 How important are these different factors in relative terms? To shed some light on this issue, we develop and apply empirically a framework that decomposes aggregate productivity growth into the contributions from inter-industry and intra-industry reallocations and general technological progress. Our framework builds on those developed in Baily, Hulten, Campbell, Bresnahan, and Caves (1992), Grilliches andRegev (1995), andKrizan (2001). We offer two innovations.First, we extend the static single-industry concept of Olley and Pakes (1996, henceforth OP) to a dynamic multi-industry one. This allows us to evaluate the relative strength of reallocations across as opposed to within industries. The advantage of the OP concept lies in the distinction between changes in Rev Int Econ. 2018;26:339-356.wileyonlinelibrary.com/journal/roie

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