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A Global View of Creative Destruction

Chang-Tai Hsieh, Peter J. Klenow, Ishan B. Nath

NBER Working Paper No. 26461
Issued in November 2019
NBER Program(s):Economic Fluctuations and Growth Program, International Trade and Investment Program

In the wake of the U.S.-Canada Free Trade Agreement, both the U.S. and Canada experienced a sustained increase in job reallocation, including firms moving into exporting. The change involved big firms as much as small firms. To mimic these patterns,we formulate a model of innovation by both domestic and foreign firms. In the model, trade liberalization quickens the pace of creative destruction, thereby speeding the flow of technology across countries. The resulting dynamic gains from trade liberalization are an order of magnitude larger than the gains in a standard static model.

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Document Object Identifier (DOI): 10.3386/w26461

 
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