---
# System prepended metadata

title: '(Aghion, Bergeaud, Lequien, and Melitz, 2018)'
tags: [macro, france, papersummary, trade, innovation]

---

# (Aghion, Bergeaud, Lequien, and Melitz, 2018)
---
* **Title:** The Impact of Exports on Innovation: Theory and Evidence
* **Authors:** Aghion, P., A. Bergeaud, M. Lequien, and M. Melitz
* **Journal:** Working Paper
* **Year, Volume, Issue, Pages:** --
* **Summary Created On:** April 5, 2020
###### tags: `papersummary` `innovation` `trade` `macro` `france`
---
## Thoughts
* This paper is of course closely related to the Bloom, Draca, and Van Reenen (2016) paper. Aghion et al is a theoretical paper, however, and focuses on just France
* This model might be useful to study in detail later...

## Question
* Effect of trade on innovation-led productivity (New growth theory) + effect of productivity on trade (Melitz-style models)
* The key contribution of this paper is in looking at the impact of the *size of the market* on the innovation response. The innovation response is then disaggregated based on firm heterogeneity, where heterogeneity is measured as distance from the technological frontier at baseline
    * The impact of a large market should be uniform across firm types; but large markets also imply higher competition--and it is this later interacting effect that has different predictions by firms' costs of production
* Following is the fascinating motivating image of the paper. Each centile has the same number of firms; against each centile, the proportion of all French firms that are innovators, is plotting. Stunning relationship

![](https://i.imgur.com/Y1xOLHY.png)

## Results
* In response to changes in export conditions in destination countries, firms that are closer to the frontier innovate more (so reduce their production costs most) compared to firms that are further away... some firms even experience reversal of innovation
* Both the quantity and quality of patents is considered

## Data
* Manufacturing firms only
* France

**Identification**
* Firm-level export demand variable that responds to aggregate conditions in a firm's export destinations but orthogonal to firm decisions for export-market participation and forward looking innovation response

## Theory (Main Model)
* Model of trade and innovation with heterogenous firms (heterogeneity coming from cost of production). Innovation allows firms to reduce their production costs 
    * How does this deal with "high tech" vs. "low tech"? Or is this paper just "low investment" vs "high investment"?
* Monopolistic competition
* Starting hypothesis of the model is that a positive trade shock will increase innovation for high-tech firms, and will reduce innovation in low-tech firms. For the former, there are two channels. (1) Market size expands, and (2) competition amongst exporters into the Chinese market expands
* Compositional effects rely on Chinese imports being low-quality, right?
* Endogenous markups is key to build-in endogenous competition


## Background/ Facts