costs has no impact at all, in steady-state, on firms' investments in process innovation. We then show that if only a subset … of firms export, a decline in marginal trade costs raises process innovation in exporting firms relative to that of non …-exporting firms. This reallocation of process innovation reinforces existing patterns of comparative advantage, and leads to an …

a substantial impact on heterogeneous firms' exit, export, and process innovation decisions, the impact of changes in … these decisions on welfare is largely offset by the response of product innovation. Our results suggest that microeconomic …