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 an 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 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 The Vienna Institute for International Economic Studies, wiiw in its series wiiw Working Papers with number 77.
Length: 23 pages including 7 Tables
Date of creation: Dec 2011
Date of revision:
Publication status: Published as wiiw Working Paper
Other versions of this item:
- Eddy Bekkers & Robert Stehrer, 2011. "Reallocation gains in a specific factors model with firm heterogeneity," Economics working papers 2011-15, Department of Economics, Johannes Kepler University Linz, Austria.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-27 (All new papers)
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