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Trade, Capital Redistribution and Firm Structure

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  • Larry D. Qiu
  • Wen Zhou

Abstract

A model of heterogeneous firms with multiple products and two production factors (labor and capital) is used to study how trade liberalization affects firms' choices through both product and factor markets. Trade liberalization is shown to always redistribute capital toward more efficient firms and always to improve an industry's total factor productivity. However, it may reduce capital prices and cause labor productivity to drop. Low efficiency firms are affected mainly by changes in the factor market, while high efficiency firms are affected mainly by changes in the product market. In response to trade liberalization, low efficiency firms always reduce their product scope, but high efficiency firms may expand their scope. The model demonstrates the importance of the interplay between product and factor markets.

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File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd10-142.pdf
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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd10-142.

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Date of creation: Jun 2010
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Handle: RePEc:hst:ghsdps:gd10-142

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Keywords: firm heterogeneity; trade liberalization; multiproduct; multifactor; firm structure; scale; scope; mergers and acquisitions;

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  1. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2012. "Market size, competition, and the product mix of exporters," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 54286, London School of Economics and Political Science, LSE Library.
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