Globalization and Industry Dynamics

Featuring the same name as the overall Research Group the GlobID project is one of our current key focus areas. The GlobID project is situated at the School of Business and Social Sciences, Aarhus University and is financed by the Danish Social Science Research Council. The project runs until 2009 and includes researches from the University of Southern Denmark and several foreign institutions.

The project in brief:  In the past few years a novel branch of literature - which for lack of a better term has been referred to as the "new new" trade theory - has proven its potential to become a new consensus in international economics. Traditional economic trade theories have long been criticized for the distressing mismatch between model predictions and the empirical facts. For example, the simple real-world observations that not all firms within a given industry do export or that export-active firms are more productive than their non-exporting counter parts are unexplained by previous theories.

"New new" trade theory is able to resolve these conflicts by combining imperfect competition settings with modelling devices addressing firm-level cost heterogeneity. Moreover, this class of models has identified entirely new gains from trade. While economists previously confined the gains from trade to the international division of labour and access to a wider range of products "new new" trade theory has established, that the opening to trade (i.e. globalization) triggers substantial productivity gains because high productivity firms will squeeze out low productivity firms. These new insights concerning the interaction of industry dynamics and globalization pose fundamental new questions that challenge conventional wisdom concerning the benefits (and costs) of globalization, the effect and role of trade policies, and the drivers of industrial structural change.

The aim of this project is to answer these questions and therewith to further our understanding of the effects of globalization on the economy, industries, firms and ultimately every individual. The key towards this goal is the close integration of theory and empirics. Firstly, the project extends the theory by conducting a systematic comparison of models with different types of firm heterogeneity and by re-examining real-world trade policies (such as tariffs and anti-dumping duties) within "new new" trade theory settings. Secondly, the project takes the theory back to the data by analyzing the actual patters of firm-level heterogeneity as well as the backwards linkages of international trade onto industry dynamics with unique Danish data.


Contact person:

Philipp J.H. Schröder