Reallocation gains in a specific factors model with firm heterogeneity
AbstractWe study firm heterogeneity in a specific factors model to address the effect of factor mobility on reallocation gains from trade. A model is proposed with Melitz type firm heterogeneity with two sectors, two countries and two fixed factors and one factor mobile across sectors. Equilibrium in each sector can be concisely represented by a demand and supply equation and a FE and ZCP condition. Varying the substitution elasticity between the fixed and mobile factor we show that the welfare gains from trade liberalization are larger in countries with a lower substitution elasticity. Furthermore, it is shown that the immobile production factor in the comparative disadvantage sector can still gain from trade liberalization due to the reallocation effect.
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Bibliographic InfoPaper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2011-15.
Length: 24 pages
Date of creation: Oct 2011
Date of revision:
Firm heterogeneity; Specific Factors; Reallocation Gains from Trade;
Other versions of this item:
- Eddy Bekkers & Robert Stehrer, 2011. "Reallocation Gains in a Specific Factors Model with Firm Heterogeneity," wiiw Working Papers 77, The Vienna Institute for International Economic Studies, wiiw.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
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