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Theories of Heterogeneous Firms and Trade

  • Stephen J. Redding


    (Department of Economics, Princeton University, Princeton, New Jersey 08544-1021, and CEPR, London, EC1V 3PZ United Kingdom)

This article reviews the recent theoretical literature on heterogeneous firms and trade, which emphasizes firm selection into international markets and reallocations of resources across firms. We discuss the empirical challenges that motivated this research and its relationship to traditional trade theories. We examine the implications of firm heterogeneity for comparative advantage, market size, aggregate trade, the welfare gains from trade, and the relationship between trade and income distribution. Although a number of studies examine the endogenous response of firm productivity to trade liberalization, modeling internal firm organization and the origins of firm heterogeneity remain interesting areas of ongoing research.

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Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 3 (2011)
Issue (Month): 1 (09)
Pages: 77-105

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Handle: RePEc:anr:reveco:v:3:y:2011:p:77-105
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