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Trade and Industrial Policies with Heterogeneous Firms: The Role of Country Asymmetries

Author

Listed:
  • Pflüger, Michael P.

    (University of Würzburg)

  • Russek, Stephan

    (University of Passau)

Abstract

This paper explores the role of country asymmetries for trade and industrial policies with heterogeneous firms. Our analysis delivers a number of novel results. First, trade policies, infrastructure policies and industrial policies which improve the business conditions in one country have negative productivity and welfare effects on the trading partner. Second, symmetric trade liberalization is immiserizing for a trading partner whose business conditions are inferior. Third, there are gains from trade even for a country whose monopolistically competitive sector with heterogeneous firms is wiped out by the switch from autarky to trade.

Suggested Citation

  • Pflüger, Michael P. & Russek, Stephan, 2010. "Trade and Industrial Policies with Heterogeneous Firms: The Role of Country Asymmetries," IZA Discussion Papers 5387, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5387
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    References listed on IDEAS

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    Cited by:

    1. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Journal of International Economics, Elsevier, vol. 89(1), pages 13-25.
    2. Marco Pinto & Jochen Michaelis, 2014. "International Trade and Unemployment—the Worker-selection Effect," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 226-252, May.

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    More about this item

    Keywords

    business conditions; industrial policies; trade policies; welfare; firm heterogeneity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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