Podcast
Questions and Answers
In the conceptual framework provided, which of the following is considered an input factor that directly influences productivity?
In the conceptual framework provided, which of the following is considered an input factor that directly influences productivity?
- Market Integration
- Domestic Market
- Technology (correct)
- Foreign Market
According to the content, what is predominantly evidenced as a driver of economic growth?
According to the content, what is predominantly evidenced as a driver of economic growth?
- Domestic Competition
- Exporting (correct)
- Market Integration
- Protectionism
Which complementary policy is highlighted as important for ensuring technological development?
Which complementary policy is highlighted as important for ensuring technological development?
- Labor Regulations
- Trade Barriers
- Material Subsidies
- Infrastructure (correct)
Based on the conceptual framework, which element directly mediates between productivity and the domestic/foreign markets?
Based on the conceptual framework, which element directly mediates between productivity and the domestic/foreign markets?
According to the references, which factor did Autor, Dorn, Hanson, Pisano, and Shu (2017) investigate in relation to domestic innovation?
According to the references, which factor did Autor, Dorn, Hanson, Pisano, and Shu (2017) investigate in relation to domestic innovation?
In the context of market dynamics within the conceptual framework, protectionism is specifically designed to shield against what?
In the context of market dynamics within the conceptual framework, protectionism is specifically designed to shield against what?
According to the reference materials, which of the following papers examines the impact of trade liberalization on productivity through intermediate inputs?
According to the reference materials, which of the following papers examines the impact of trade liberalization on productivity through intermediate inputs?
How do complementary policies enable technology development that leads to economic growth?
How do complementary policies enable technology development that leads to economic growth?
According to the analysis presented, how does a reduction in trade costs primarily affect firms that were initially non-exporters?
According to the analysis presented, how does a reduction in trade costs primarily affect firms that were initially non-exporters?
When trade costs fall, what is the expected impact on the number of firms in an industry?
When trade costs fall, what is the expected impact on the number of firms in an industry?
What was the main goal of Argentina joining MERCOSUR in the early 1990s?
What was the main goal of Argentina joining MERCOSUR in the early 1990s?
In the context of Bustos' study on Argentina, which firms are most likely to upgrade their technology following a tariff reduction?
In the context of Bustos' study on Argentina, which firms are most likely to upgrade their technology following a tariff reduction?
How did Bustos measure technology spending (ST) in the Argentina study?
How did Bustos measure technology spending (ST) in the Argentina study?
What is the predicted impact of falling trade costs on firms' export behavior and technology adoption?
What is the predicted impact of falling trade costs on firms' export behavior and technology adoption?
What does the 'innovation index' used in the Argentina study primarily measure?
What does the 'innovation index' used in the Argentina study primarily measure?
According to the material, what direct impact on firms occurs when export revenues increase because of reduced trade tariffs?
According to the material, what direct impact on firms occurs when export revenues increase because of reduced trade tariffs?
According to the framework presented, how does increased competition in the domestic market directly affect a firm's target market?
According to the framework presented, how does increased competition in the domestic market directly affect a firm's target market?
In the context of import competition, what is the core difference between the Schumpeterian effect and the escape competition effect on innovation?
In the context of import competition, what is the core difference between the Schumpeterian effect and the escape competition effect on innovation?
Firms weigh the trade-off between profits from innovating and not innovating. Which of the following equations best represents this decision-making process?
Firms weigh the trade-off between profits from innovating and not innovating. Which of the following equations best represents this decision-making process?
According to Schumpeter's idea, how does import competition influence a firm's incentives to innovate?
According to Schumpeter's idea, how does import competition influence a firm's incentives to innovate?
According to the inverted U-shape theory of innovation, what happens to a laggard firm's incentive to innovate as duopoly profits significantly decrease?
According to the inverted U-shape theory of innovation, what happens to a laggard firm's incentive to innovate as duopoly profits significantly decrease?
Based on Arrow's 'escape competition' idea, how does import competition affect a firm's pre-innovation rents and subsequent incentives to innovate?
Based on Arrow's 'escape competition' idea, how does import competition affect a firm's pre-innovation rents and subsequent incentives to innovate?
What is the primary outcome of the Schumpeterian effect on innovation due to import competition?
What is the primary outcome of the Schumpeterian effect on innovation due to import competition?
What is the primary implication of the 'inverted U-shape' relationship between competition and innovation, as suggested by Aghion et al. (2005)?
What is the primary implication of the 'inverted U-shape' relationship between competition and innovation, as suggested by Aghion et al. (2005)?
According to the model presented, what is a key assumption about the number of firms considered when analyzing innovation decisions?
According to the model presented, what is a key assumption about the number of firms considered when analyzing innovation decisions?
Under what market condition does the Schumpeterian effect most significantly impact innovation?
Under what market condition does the Schumpeterian effect most significantly impact innovation?
Considering both the Schumpeterian and Escape Competition effects, what is a likely outcome in an industry where firms face a substantial import competition shock?
Considering both the Schumpeterian and Escape Competition effects, what is a likely outcome in an industry where firms face a substantial import competition shock?
How does the 'escape competition effect' influence firms that are neck-and-neck in the market?
How does the 'escape competition effect' influence firms that are neck-and-neck in the market?
What is the primary effect of 'trapped factors' on a firm's innovation strategy?
What is the primary effect of 'trapped factors' on a firm's innovation strategy?
How do managerial private benefits and X-inefficiency relate to the 'preference effect' on innovation?
How do managerial private benefits and X-inefficiency relate to the 'preference effect' on innovation?
According to the empirical evidence regarding import competition, what is a common trend observed in the United States and Canada?
According to the empirical evidence regarding import competition, what is a common trend observed in the United States and Canada?
In contrast to the United States and Canada, what is a typical effect of import competition observed in Europe and developing countries?
In contrast to the United States and Canada, what is a typical effect of import competition observed in Europe and developing countries?
What mechanism underlies the 'escape competition effect' that drives innovation?
What mechanism underlies the 'escape competition effect' that drives innovation?
How do 'trapped factors' differ from typical production factors in their influence on innovation strategy?
How do 'trapped factors' differ from typical production factors in their influence on innovation strategy?
According to the listed references, how might trade liberalization impact Argentinian firms?
According to the listed references, how might trade liberalization impact Argentinian firms?
According to the references, what is a potential outcome of import competition, considering the preferences of managers?
According to the references, what is a potential outcome of import competition, considering the preferences of managers?
Based on the references, how might increased trade with China affect innovation, IT adoption, and productivity in other countries?
Based on the references, how might increased trade with China affect innovation, IT adoption, and productivity in other countries?
What role do imported intermediate inputs play in the domestic product growth of a country, as suggested by the references?
What role do imported intermediate inputs play in the domestic product growth of a country, as suggested by the references?
How does the concept of 'economic development as self-discovery' relate to trade and industrial policy?
How does the concept of 'economic development as self-discovery' relate to trade and industrial policy?
In what way can trade contribute to a shift from unproductive to productive entrepreneurship, according to the references?
In what way can trade contribute to a shift from unproductive to productive entrepreneurship, according to the references?
What does Hart's (1983) perspective on the market mechanism suggest regarding incentives?
What does Hart's (1983) perspective on the market mechanism suggest regarding incentives?
According to the references, what factors might mediate the impact of China’s growth on the global economy?
According to the references, what factors might mediate the impact of China’s growth on the global economy?
According to the presented framework, how does increased import competition primarily affect firms?
According to the presented framework, how does increased import competition primarily affect firms?
How might access to new or higher quality intermediate inputs affect a firm's production?
How might access to new or higher quality intermediate inputs affect a firm's production?
A reduction in tariffs on imported goods leads to increased competition in the output market and improved access to foreign inputs. What is the primary analytical challenge in determining the overall impact of this change on domestic firms' innovation?
A reduction in tariffs on imported goods leads to increased competition in the output market and improved access to foreign inputs. What is the primary analytical challenge in determining the overall impact of this change on domestic firms' innovation?
In the context of trade liberalization, how would increased access to imported intermediates most likely impact product innovation?
In the context of trade liberalization, how would increased access to imported intermediates most likely impact product innovation?
A country's trade liberalization policy results in local firms facing stiffer competition from abroad, but simultaneously allows them cheaper access to higher quality intermediate goods. According to Amiti and Konings, what is an unclear outcome of this policy mix with respect to domestic firms?
A country's trade liberalization policy results in local firms facing stiffer competition from abroad, but simultaneously allows them cheaper access to higher quality intermediate goods. According to Amiti and Konings, what is an unclear outcome of this policy mix with respect to domestic firms?
Imagine a domestic manufacturing firm can now import higher-quality components due to a new trade agreement. Which scenario would provide evidence that access to improved inputs is the primary driver of increased profitability, rather than merely surviving increased output market competition?
Imagine a domestic manufacturing firm can now import higher-quality components due to a new trade agreement. Which scenario would provide evidence that access to improved inputs is the primary driver of increased profitability, rather than merely surviving increased output market competition?
Suppose a firm benefits from both increased access to foreign markets and increased competition in its domestic market due to trade liberalization. Which strategy would best leverage both of these changes?
Suppose a firm benefits from both increased access to foreign markets and increased competition in its domestic market due to trade liberalization. Which strategy would best leverage both of these changes?
A company in a developing country begins importing advanced manufacturing equipment, leading to higher production efficiency and better quality products. However, it also faces stiffer competition from foreign firms selling similar products. Which outcome would suggest that the access to advanced machinery is having a more significant impact than the increased competition?
A company in a developing country begins importing advanced manufacturing equipment, leading to higher production efficiency and better quality products. However, it also faces stiffer competition from foreign firms selling similar products. Which outcome would suggest that the access to advanced machinery is having a more significant impact than the increased competition?
Flashcards
Market Interactions
Market Interactions
Domestic markets face increased competition, while foreign markets offer increased access.
Inputs
Inputs
Resources used in production, such as labor, materials and machinery.
Outputs
Outputs
Goods or services produced from inputs.
Import Competition
Import Competition
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Labor
Labor
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Export Opportunities
Export Opportunities
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Materials
Materials
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Foreign Input Competition
Foreign Input Competition
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Access to Imported Intermediates
Access to Imported Intermediates
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Machinery
Machinery
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Productivity Factors
Productivity Factors
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Schumpeterian Effect
Schumpeterian Effect
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Focal Industry
Focal Industry
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Escape Competition Effect
Escape Competition Effect
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Inverted U-Shape
Inverted U-Shape
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Protectionism
Protectionism
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Duopoly Innovation Incentive
Duopoly Innovation Incentive
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Inverted U-Shape in Innovation
Inverted U-Shape in Innovation
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Trapped Factors Effect
Trapped Factors Effect
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Preference Effect
Preference Effect
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Managerial Slack
Managerial Slack
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Effect of Import Competition
Effect of Import Competition
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Import Competition in Europe/Developing Nations
Import Competition in Europe/Developing Nations
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Import Competition in US/Canada
Import Competition in US/Canada
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Tariff Reduction: Firm Exit
Tariff Reduction: Firm Exit
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Tariff Reduction: Export Increase
Tariff Reduction: Export Increase
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Tariff Reduction: Tech Upgrade
Tariff Reduction: Tech Upgrade
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Tariff Reduction: Increased Entry
Tariff Reduction: Increased Entry
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Trade Cost Reduction: Profit Tilt
Trade Cost Reduction: Profit Tilt
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Mid-Productivity Firms: Tech Upgrade
Mid-Productivity Firms: Tech Upgrade
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MERCOSUR
MERCOSUR
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Technology Spending (ST)
Technology Spending (ST)
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Trade's Impact on Innovation
Trade's Impact on Innovation
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Competition Types in Trade
Competition Types in Trade
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Market Impact of Trade factors
Market Impact of Trade factors
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Benefits of Imported Inputs
Benefits of Imported Inputs
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Outcomes of Better Inputs
Outcomes of Better Inputs
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Trade Liberalization
Trade Liberalization
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Two effects of trade liberalization
Two effects of trade liberalization
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Amiti & Konings Research Focus
Amiti & Konings Research Focus
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Trade-Induced Technical Change
Trade-Induced Technical Change
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Trapped Factors
Trapped Factors
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Trade Liberalization & Tech Upgrading
Trade Liberalization & Tech Upgrading
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Import Competition & Manager Preferences
Import Competition & Manager Preferences
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Imported Inputs & Product Growth
Imported Inputs & Product Growth
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Trade, Investment, & Industrial Policy
Trade, Investment, & Industrial Policy
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Market Mechanism as Incentive
Market Mechanism as Incentive
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Economic Development as Self-Discovery
Economic Development as Self-Discovery
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Study Notes
- Globalization and Innovation are the current lecture topics.
- The lecture is given by Professor Claudia Steinwender, PhD, LMU
Slowbalization
- The world is not experiencing deglobalization, but rather a slowdown in globalization, or "slowbalization"
- Trends in world exports of goods and services reveal this slowbalization
Causes of Slowbalization
- Inequality
- Covid-19
- Russian invasion of Ukraine.
Concerns Regarding Globalization
- Globalization does not cause rising inequality across countries.
- Globalization does lead to rising inequality within countries.
- Globalization does eliminate manufacturing jobs in developed countries.
- Countries have not become too dependent on each other.
- National security may become compromised by trading with enemy countries.
- Globalization could be used to fund war efforts of enemy countries. .
Tariffs and Trade Restrictions
- There has been a reduction in tariffs and trade restrictions.
- Since WW2, there has been a surge in regional trade agreements (e.g., EU).
- More countries are accessing the World Trade Organization (WTO).
- A second presidency of Donald Trump could increase tariffs.
- Tariffs of up to 60% on China and up to 20% on the EU have been threatened.
- Retaliatory tariffs will most likely follow.
- It is important to consider the competitiveness and economic growth of countries like Germany, especially when considering restricting globalization and introducing tariffs.
How Globalization Influences Innovation
- Trade in goods and services encourages innovation in firms.
- Foreign direct investment (FDI) spurs innovation.
- Migration contributes to innovation.
- Knowledge flows promote innovation.
- Both direct and indirect effects (spillover effects) foster innovation.
Trade's Impact on Firm Innovation
- Trade in goods and services affects innovation depending on the market
- Output market with increased competition in domestic market leads to import competition
- Output market with increased access to foreign market leads to export opportunities
- Input market with increased competition in domestic market leads to foreign input competition
- Input market with increased access to foreign market leads to access to imported intermediates
Export Opportunities' effect firm's
- Firms can sell more cheaply to foreign consumers.
- Market size effect: the potential output market's size increases
- Potential mechanisms: the size of the potential output market increases, rents to a specific innovation increase while costs remain the same, marginal investments become more attractive, which is highly relevant for exporters and potential exporters.
- Induced competition increases the industry's attractiveness and encourages more competition.
- Additional competition affects how much innovation (see import competition channel) and is relevant for non-exporters and exporters.
Export Market Access
- Firms have an initial productivity φ (phi).
- Firms can choose to export.
- This involves a fixed exporting cost (fx).
- This also means there is additional revenue, which depends on the initial productivity levels.
- Firms can improve their technology
- There is a fixed cost for innovation (ηf).
- Initial productivity is improved to γφ (gamma phi).
- There are four choices total: -Choice 1 - Not exporting (d), tech stay (1) yields profits πd(φ). -Choice 2 -Exporting (x), tech stay (1) yields profits πx(φ). -Choice 3 - Not exporting (d), tech improvement (h) yields profits πh(φ). -Choice 4 - Exporting (x), tech improvement (h) yields profits πxh(φ).
Optimal Firm Choices
- A firm's choice depends on their productivity φ (firms use the largest profit function).
What Occurs When Trade Costs Decrease?
- Direct Effect - Export revenues increase: more companies export or upgrade technology.
- Indirect Effect Through Increased Entry - Expected profits improve (before establishments know productivity and expectations are over all possible instances of productivity), more companies enter, dropping prices and raising profits for exporters.
- Graphically, the two export profit functions will tilt up, and the two domestic profit functions will tilt down.
What Occurs Overall With Decreasing Trade Costs?
- The number of companies exiting increases.
- Exporting firms increases.
- Companies export and enhance technology more.
- It is new in Bustos [2011] compared to Melitz [2003]
Bustos' Empirics Test
- Tariffs decreasing causes upgrades in mid-productivity distribution firms
- There should be a higher quantity leaving with tariffs down
- Argentina early 1990s was the setting
- March 1991 saw MERCOSUR Launch
- Argentina, Paraguay, and Brazil
- Gradual zeroing of bilateral tariffs happening between 1991 and 1994 December.
- Argentina firm level numbers taken between 1992-1996
- Spending has technology element including payments for transfer and patents and computers for instance
- The innovation index measures yes answers to questions related to innovation
Import Competition Effects
- Schumpeterian effect, negative on innovation.
- Escape competition effect, positive on innovation.
- Trapped factors, positive effect on innovation.
- Preference effect, positive on innovation.
Schumpeterian vs Escape Effects
- Firms weigh innovating against non-innovating
- (Ï€ not innovate) smaller or equal to (Ï€ innovate)
- Pre innovation rents smaller or equal to Post innovation rents – innovation cost
- Schumpeterian idea: import reduces post-innovation rents and reduces incentives to innovate
- Escape idea: import Reduces pre-innovation rents which increases incentives to innovate
Further insight on Effects
- Schumpeterian effect where rents from innovation are potentially reduced
- Escape competition effect where pre innovation rents are decreased because share shrinks
- Trapped factors positive where moving costs opportunity is reduced
- Preference effect is positive
- Inverted U explained has two key components firms innovating based on competition and if firms chose not to innovate, they share duopoly which hinges greatly on level of comp
Industrial Policy
- The best Industrial policy is none (Gary Becker) 1958
- Debate of Policy is not is one must do it but how you go forward.
- Industrial policy (Stiglitz) is rightly so back in fashion in 2017
- Industrial Policy, governments actions explicitly in line to transform the structure of economic activities while In pursuit of a more fair and just public goal
- Includes structural change, goal is to promote, create jobs, innovation with tools with a wide net
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