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Inter-industry trade and heterogeneous firms: country size matters

Author

Listed:
  • Hangtian Xu

    (Hunan University)

  • Yiming Zhou

    (School of Management, Harbin Institute of Technology)

Abstract

This study investigates how industries with different patterns of firm heterogeneity distribute across countries by developing a three-sector general-equilibrium model. We show that the larger country is more specialized in the industry with heterogeneous (homogeneous) firms when trade costs are low (high) and that an increase in the inter-industry difference in firm heterogeneity fosters the larger country’s degree of specialization in the industry with heterogeneous firms. We also disclose the wage inequality and trade patterns across countries and show how they respond to trade liberalization.

Suggested Citation

  • Hangtian Xu & Yiming Zhou, 2023. "Inter-industry trade and heterogeneous firms: country size matters," The Japanese Economic Review, Springer, vol. 74(1), pages 57-81, January.
    • Handle: RePEc:spr:jecrev:v:74:y:2023:i:1:d:10.1007_s42973-020-00065-5
    DOI: 10.1007/s42973-020-00065-5
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    More about this item

    Keywords

    Firm heterogeneity; Industrial specialization; Trade patterns;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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