Import competition

Openness and Productivity: a Model of Firm-Owners' Effort, with an Illustration from Mexican Microenterprises

This paper asks two questions. First, when countries open up, what are the incentives of firm owners to invest in the productivity of their firms? And why do they wait until the country opens up to do so? To explore these questions, I set up a simple model in which firm owners choose the optimal mix of profits and leisure. The key insight is that openness drives a wedge between "productive" and "unproductive" firm owners, driving up the price of leisure, and therefore the incentives to innovate.

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