New Trade Models, New Welfare Implications
AbstractWe examine whether firm heterogeneity matters for the aggregate welfare implications of trade by comparing heterogeneous and homogeneous firm models. We show that the endogenous entry/ exit decisions of firms into/out of the domestic and export market provide a new channel for welfare gains that is absent from models without firm heterogeneity. We use a theoretical comparative static to isolate the additional component of welfare associated with this channel and to show that models of firm heterogeneity have new aggregate welfare implications. We express the welfare gains from trade in the heterogeneous and homogeneous firm models in terms of observable empirical moments. We show that in the general cases of these models the aggregate domestic trade share and trade elasticity are not sufficient statistics for welfare.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18919.
Date of creation: Mar 2013
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Other versions of this item:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F15 - International Economics - - Trade - - - Economic Integration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-30 (All new papers)
- NEP-BEC-2013-03-30 (Business Economics)
- NEP-EFF-2013-03-30 (Efficiency & Productivity)
- NEP-INT-2013-03-30 (International Trade)
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