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Trade and Selection with Heterogeneous Firms and Perfect Competition

Author

Listed:
  • Xue Bai
  • Arpita Chatterjee
  • Kala Krishna
  • Hong Ma

Abstract

This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin-Samuelson setting. We show that trade need not make selection in the comparative advantage sector stricter as suggested by earlier work. Selection is driven by the capital intensity in entry costs relative to production costs. If trade raises (reduces) the wage rental ratio, and entry costs are more labor intensive than production costs in a sector, then the ratio of entry cost to production costs will rise (fall) and selection will become weaker (stricter) in this sector. Moreover, we show that the central theorems of the HOS model (as well as the standard generalizations using duality) carry over in our setting.

Suggested Citation

  • Xue Bai & Arpita Chatterjee & Kala Krishna & Hong Ma, 2022. "Trade and Selection with Heterogeneous Firms and Perfect Competition," NBER Working Papers 30650, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30650
    Note: ITI
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    JEL classification:

    • F0 - International Economics - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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