Trapped Factors and China's Impact on Global Growth. Issue 633 (6th July 2020)

• Record Type: Journal Article
• Authors: Bloom, Nicholas; Romer, Paul; Terry, Stephen J; Van Reenen, John
• Is Part Of: Economic journal. Volume 131:Issue 633(2021)
• Page Start: 156
• Page End: 191
• Publication Date: 2020-07-06
• Subjects: Economics -- Periodicals; Économie politique -- Périodiques; 330.05
• DOI: 10.1093/ej/ueaa086
• Languages: English
• ISSNs: 0013-0133

Abstract

Abstract: After a recent increase in Chinese import competition, European firms increased innovation. We present and rationalise these patterns using 'trapped factors' at the micro level within a stylised equilibrium model of product-cycle trade and growth. Trade integration of the magnitude observed between the OECD and low-wage nations as a whole can considerably increase the long-run growth rate and welfare. In the short run exposed firms devote trapped factors to increased innovation, leading both to increased innovation at these individual firms as well as to a small amount of extra transitional growth overall. China accounts for half of the dynamic trade gains.