Trade Liberalization Can Boost Productivity By Inducing A Better Allocation Of Production Factors

1436 Words6 Pages
INTERNATIONAL TRADE AND INNOVATION

Submitted By: Muhammad Yousaf

Submitted To: Priit Vahter

Introduction

The trade liberalization can boost productivity by inducing a better allocation of production factors or the adoption of more advanced technologies. The trade integration reallocates market shares towards exporters, the most productive firms, increasing aggregate productivity. The resulting increase in revenues can induce exporters to invest in new technologies. The major advantage of Chinese trade had been lower prices for consumers in the developed world (Bloom et al. (2011)).

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Discussion
The major advantage of Chinese trade had been lower prices for consumers in the developed world. The increased Chinese trade has induced faster technical change not only innovation but also adoption of new technologies. Bloom et al. (2011) discover that the absolute volume of innovation (not just per worker productivity or patents) increases within firms and industries more affected by exogenous reductions in barriers to the country’s imports.

The following three problems were discussed by Bloom et al. (2011). (i) The data from the last decade used to examine the recent role of trade in affecting technical change in developed countries. (ii) It has examined off shoring to China, and (iii) the impact of imports on patents, information technology (IT), research and development (R&D)

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