Asymmetries with R&D-Driven Growth and Heterogeneous Firms.

This paper studies the impact of trade liberalization on the productivity growth of two asymmetric countries in a R&D driven growth model with heterogeneous firms. The Melitz’s reallocation of production induces positive but asymmetric productivity gains. Growth is also affected in an asymmetric way because trade liberalization reduces innovation incentives with a different strength in the two countries. A more productive country suffers a higher slowdown in the productivity growth rate.