This paper investigates the effect of export shocks on innovation. On the one hand a positive shock increases market size and therefore innovation incentives for all firms. On the other hand it increases competition as more firms enter the export market. This in turn reduces profits and...

This paper builds a dynamic industry model with heterogeneous firms that explains why international trade induces reallocations of resources among firms in an industry. The paper shows how the exposure to trade will induce only the more productive firms to enter the export market (while some...