Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Model of Trade with Ricardian Comparative Advantage and Intra-sectoral Firm Heterogeneity

Contents:

Author Info

  • Haichao Fan
  • Edwin L.-C. Lai
  • Han Steffan Qi

Abstract

In this paper, we merge the heterogenous firm trade model of Melitz (2003) with the Ricardian model of Dornbusch, Fisher and Samuelson (DFS 1977) to explain how the pattern of international specialization and trade is determined by the interaction of comparative advantage, economies of scale, country sizes and trade barriers. The model is able to capture the existence of inter-industry trade and intra-industry trade in a single unified framework. It explains how trade openness affects the pattern of international specialization and trade. It generalizes Melitz’s firm selection effect in the face of trade liberalization to a setting where the patterns of inter-industry trade and intra-industry are endogenous. Although opening to trade is unambiguously welfare-improving in both countries, trade liberalization can lead to an counter-Melitz effect in the larger country if it is insufficiently competitive in the sectors where it has the strongest comparative disadvantage but still produces. In this case, the operating productivity cutoff is lowered while the exporting cutoff increases in the face of trade liberalization. This is because the intersectoral resource allocation (IRA) effect dominates the Melitz effect in these sectors. Consequently, the larger country can lose from trade liberalization. Some hypotheses related to firms’ exporting behavior across sectors upon opening up to trade and upon trade liberalization are also derived. Analyses of firm-level data of Chinese manufacturing sectors confirm these hypotheses.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-11/cesifo1_wp3634.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3634.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:ces:ceswps:_3634

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Email:
Web page: http://www.cesifo.de
More information through EDIRC

Related research

Keywords: inter-industry trade; intra-industry trade; heterogeneous firms; trade liberalization;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, American Economic Association, vol. 70(5), pages 950-59, December.
  2. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, Elsevier, vol. 9(4), pages 469-479, November.
  3. Loren Brandt & Johannes Van Biesebroeck & Yifan Zhang, 2009. "Creative Accounting or Creative Destruction? Firm-level Productivity Growth in Chinese Manufacturing," NBER Working Papers 15152, National Bureau of Economic Research, Inc.
  4. Costas Arkolakis, 2008. "Market Penetration Costs and the New Consumers Margin in International Trade," NBER Working Papers 14214, National Bureau of Economic Research, Inc.
  5. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 178, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Bernard, Andrew B. & Jensen, J. Bradford & Schott, Peter K., 2006. "Trade costs, firms and productivity," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(5), pages 917-937, July.
  7. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
  8. Toshihiro Okubo, 2009. "Firm heterogeneity and Ricardian comparative advantage within and across sectors," Economic Theory, Springer, Springer, vol. 38(3), pages 533-559, March.
  9. Svetlana Demidova, 2008. "Productivity Improvements And Falling Trade Costs: Boon Or Bane?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1437-1462, November.
  10. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2004. "Comparative Advantage and Heterogeneous Firms," NBER Working Papers 10668, National Bureau of Economic Research, Inc.
  11. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics, Boston College Department of Economics 593, Boston College Department of Economics.
  12. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1707-21, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Marc J. Melitz & Stephen J. Redding, 2012. "Heterogeneous Firms and Trade," NBER Working Papers 18652, National Bureau of Economic Research, Inc.
  2. Haichao Fan & Edwin L.-C. Lai & Han Steffan Qi, 2012. "Global Gains from Trade Liberalization," CESifo Working Paper Series 3775, CESifo Group Munich.
  3. Vivian Yue & Jiandong Ju, 2013. "A Unified Model of Structural Adjustments and International Trade: Theory and Evidence from China," 2013 Meeting Papers, Society for Economic Dynamics 859, Society for Economic Dynamics.
  4. Han QI & Haichao Fan & Edwin Lai, 2013. "Global Gains from Reduction of Trade Costs," 2013 Meeting Papers, Society for Economic Dynamics 1283, Society for Economic Dynamics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_3634. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.