Trade Policy and Industrial Sector Responses: Using Evolutionary Models to Interpret the Evidence
Erkan Erdem, James Tybout
Firm- and plant-level empirical studies typically find that trade liberalization squeezes price-cost margins among import-competing firms, that this heightened competitive pressure induces productivity gains among these same firms, and that further efficiency gains come from market share reallocations. Using a computable industrial evolution model to simulate the dynamic effects of import competition, we demonstrate what types of managerial behavior, long-term transition paths and welfare effects are consistent with this set of stylized facts.
Published: Collins, S. and D. Rodrik (eds.) Brookings Trade Forum 2003. Washington, D.C.: The Brookings Institution, 2004.