by
Beaulieu, Eugene and
Wan, ShanThis paper develops a multi-product firm model of international trade with the endoge-
nous decisions on export and import to study technology diffusion via goods trade. In our model, a
firm’s productivity in a product is a combination of its general ability which applies to all the
goods the firm produces and product expertise which applies only to a particular good. Within each
firm, the decisions of export and import are based on product expertise. Technology diffuses via
goods trade, therefore a firm can improve its productivity by reverse-engineering the imported
advanced foreign prod- ucts. We use Chinese trade data to empirically analyze our theory. The
results show that a firm will import the product in the category where it already has higher
expertise, which is consistent with the theoretical prediction. We find that a firm’s productivity
in a category gets improved when it imports in the same category, but only product
expertise gets accumulated, not the firm ability.
Download PaperView this paper on RePEc