GEP 2025/04: E-comment on equilibrium technology diffusion, trade and growth

Abstract

This comment aims to identify and correct an error in the solution to the firm’s value function presented in Perla et al. (2021). The original paper omits an equilibrium condition, which leads to non-exporting firms failing to internalize the option value of becoming exporters. This error does not affect the theoretical results (Propositions 1-8 in Section IV and V of the original paper), since they are derived in a stationary environment in which this option value is zero. The quantitative results under the original paper’s calibration are not significantly impacted. However, I demonstrate that the omission of the equilibrium condition can have substantial effects under alternative calibrations and hence caution is advised when applying a similar model in different settings.

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Author

Jake Bradley

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