International Trade & Domestic Growth:

By way of introduction, Peter Mooslechner
(OeNB) emphasized how relevant the
topic was against the background of
progressive European integration and
globalization; he drew special attention
to the welfare effects of foreign
trade. Ralf Kronberger (Austrian Federal
Economic Chamber) noted that Austrian
exports had risen sharply since 1995.
Growth has remained strong in the
first half of 2007, with Austrian
deliveries abroad advancing by 10%
and exports to Central, Eastern and
Southeastern Europe as well as Asia
surging even more. Kronberger went
on to review Hans-Werner Sinn’s
“bazaar economy” hypothesis. The
speaker identified the reduction of
nontariff trade barriers as one area
requiring a great need for action.
Moreover, Austria should work on
becoming a leading location for highlevel
services, which would require
more investment in both education
and R&D.
Michael Landesmann (wiiw) introduced
keynote speaker David Greenaway
(University of Nottingham). With his
presentation, entitled “New Perspectives
on Exporting and Productivity,”
Greenaway provided a comprehensive
overview of the newest theoretical
and empirical findings about foreign
trade and productivity. Greenaway is
one of the proponents of the New
New Trade Theory, which stresses
the importance of firm heterogeneity.
Neither the “classical” theory of
international trade (Heckscher-Ohlin
model) nor the New Trade Theory
(represented above all in the work of
Paul Krugman: Increasing Returns,
Monopolistic Competition, and International
Trade, Journal of International
Economics, 1979) take account
of the concept of firm heterogeneity.
The classical theory does not even define
the boundaries of firms, and the
New Trade Theory assumes that firms
are symmetric. Greenaway cited the
contribution by Marc Melitz (The
Impact of Trade on Intra-Industry
Reallocations and Aggregate Industry
Productivity; Econometrica, 2003)
as an outstanding theoretical work of
New New Trade Theory. The speaker
advocated a review of foreign trade
between dissimilar countries as an
important extension of Melitz’s model;
this would allow for the introduction
of comparative advantages according
to Heckscher and Ohlin by taking
into account countries’ heterogeneous
endowments with production
factors. Greenaway pointed out that
it would also be necessary to analyze
firms’ choice of either exports or
direct investment as alternative or
JEL classification: F10, F43
Keywords: economic growth, trade theory and policy, globalization.