AbstractWe study the reaction of non‐exporters to openness. While static models suggest non‐exporters lose from openness, dynamic ones where firms can innovate allow for gains from internalizing future exports. Developing a tractable model with productivity choices where both effects are present, we show analytically that the former effect dominates for small non‐exporters, while the latter dominates for large ones. Calibrating to US data, 59% of non‐exporters gain with openness, and the average non‐exporter growth rate increases by 0.02% per point drop in trade costs.
