The Interaction Between Technology Adoption and TradeWhen Firms are Heterogeneous

This paper develops a monopolistic competition model with heterogeneous firms tostudy the interaction between technology adoption and trade in a world of two countriesfacing different technology adoption costs. It shows that a reduction in the technologyadoption cost in one country increases the productivity, induces more firms to adoptadvanced technology, and improves welfare in this country, while decreasing the pro-ductivity, inducing more firms to switch back to old technology, and reducing welfare inthe other country. Furthermore, although a reduction in transport costs always makesthe country with lower adoption cost better off, it can hurt the other country....