How do Productivity benefits spill over across Firms? Explorations in a Heterogeneous Firm Applied General Equilibrium Trade model

Abstract

Considerable diffusion of technology occurs via global trade and foreign direct investment (FDI) while firm heterogeneities cause considerable production heterogeneities. Hi-tech products and investment goods of differentiated varieties from emerging and developed economies are vehicles of superior technology. Given this stylized evidence, we analyse factors facilitating (or inhibiting) technological spillover to domestic firms in the host nations in a counterfactual scenario of a Trans- Pacific-Partnership (TPP) deal. By using a mixture interface of global computable general equilibrium (CGE) models of FDI (GTAP-FDI) and firm heterogeneity model of Global Trade Analysis Project, GTAP Heterogeneous (GTAP-HET), we calibrate impacts of trade and FDI spillovers on: (i) global production, (ii) trade patterns, (iii) welfare and (iv) regional productivity gains. Importance of regional trade agreements and policy for productivity spillovers is highlighted.