Ruhr Economic Papers

Ruhr Economic Papers #400

Spillovers from Foreign Exporters

by Anna Bohnstedt

University of Duisburg-Essen, 01/2013, 35 S./p., 8 Euro, ISBN 978-3-86788-455-6 DOI: 10.4419/86788455



We develop a general equilibrium model of international trade with heterogeneous firms that accounts for productivity spillovers transmitted by foreign exporters. Everything else equal, stronger spillovers increase welfare. We embed the model framework into a trade policy scenario where countries strategically set inter-country variable trade costs for the trading partner. In the strategic Nash-equilibrium policy, governments trade-off welfare gains from protectionism and those which are due to spillovers from foreign exporters. The equilibrium degree of protectionism is decreasing in the strength of the spillover. Policy coordination induces welfare gains, but these gains can be hump-shaped in the spillover strength.

JEL-Classification: F1, L25

Keywords: Spillovers; heterogeneous firms