Shaking All Over? International Trade and Industrial Dynamics

31 Pages Posted: 15 Sep 2005

See all articles by Josh Ederington

Josh Ederington

University of Kentucky - Department of Economics

Phillip McCalman

University of California, Santa Cruz - Department of Economics

Date Written: August 2005

Abstract

This paper develops a model of international trade and industrial evolution. Evolution is driven by the endogenous technology choices of firms which generates a rich industrial environment that includes the possibility of a dramatic shakeout. The likelihood, magnitude and timing of this shakeout is characterized and depends not only on the size of the innovation but also on the structure of production costs. In this setting, trade liberalization is shown to reduce the likelihood of a shakeout, resulting in a more stable industrial structure. However, when shakeouts arise in global markets, the distribution of firm exits can vary widely across countries. Thus, open economy models of industrial evolution offer very different conclusions from closed economy models.

Keywords: international trade, shakeouts, industry dynamics

JEL Classification: F1, F12, F13, L1

Suggested Citation

Ederington, Josh and McCalman, Phillip, Shaking All Over? International Trade and Industrial Dynamics (August 2005). Available at SSRN: https://ssrn.com/abstract=799185 or http://dx.doi.org/10.2139/ssrn.799185

Josh Ederington (Contact Author)

University of Kentucky - Department of Economics ( email )

335 Business and Economics Building
Lexington, KY 40506
United States

Phillip McCalman

University of California, Santa Cruz - Department of Economics ( email )

Santa Cruz, CA 95064
United States
(831) 459-4381 (Phone)
(831) 459-5900 (Fax)

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