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

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  • Pflüger, Michael P.

    ()
    (University of Würzburg)

  • Russek, Stephan

    ()
    (University of Passau)

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    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.

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    Bibliographic Info

    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5387.

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    Length: 28 pages
    Date of creation: Dec 2010
    Date of revision:
    Handle: RePEc:iza:izadps:dp5387

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    Related research

    Keywords: business conditions; industrial policies; trade policies; welfare; firm heterogeneity;

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