The Effect of Globalization in a Semi Endogenous Growth Model with Firm Heterogeneity, Endogenous International Spillover, and Trade

We construct a semi endogenous growth model with firm heterogeneity, endogenous international spillover, and international trade and investigate the effects of further exposure to trade on R&D difficulty and welfare. Further exposure has ambiguous effects on R&D difficulty, increases when the sunk cost for foreign market is strictly greater than for domestic market and intertemporal spillover is sufficiently large, and decreases when the sunk costs for both markets are the same or the intertemporal spillover is small. We find unambiguously positive effect on welfare because the positive effects of the rises in the weighted average of productivity and the reduction in R&D costs through international spillovers strictly dominates the negative effects of increases in R&D costs through greater competition.