This paper examines how trade liberalization affects the innovation incentives of firms, and what this implies for industry productivity and social welfare. For this purpose we develop a reciprocal dumping model of international trade with heterogeneous firms and endogenous R&D. We identify two...

We consider the evolution of preferences when trade occurs between two countries. We show that if one country is much larger than the other, its preferences can eventually take over the preferences of the second country. This result may provide an explanation of why small countries sometimes...

We study the role of tax share and transparency of governance on growth and stagnation. A local government maximizes its private benefits using two activities. The first one consists of providing local public goods that help local firms to increase profits, thus enlarging tax revenue. The second...