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Fixed export cost heterogeneity, trade and welfare

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  • Jørgensen, Jan G.
  • Schröder, Philipp J.H.

Abstract

Recent literature on the workhorse model of intra-industry trade has explored heterogeneous cost structures at the firm level. These approaches have proven to add realism and predictive power. This paper presents a new and simple heterogeneous-firms specification. We develop a symmetric two-country intra-industry trade model where firms are of two different marginal cost types and where fixed export costs are heterogeneous across firms. This model traces many of the stylized facts of international trade. However, we find that with heterogeneous fixed export costs there exists a positive bilateral tariff that maximizes national and world welfare.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 52 (2008)
Issue (Month): 7 (October)
Pages: 1256-1274

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Handle: RePEc:eee:eecrev:v:52:y:2008:i:7:p:1256-1274

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Intra-industry trade Trade liberalization Monopolistic competition Heterogeneous firms Welfare Protectionism;

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References

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