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Theories of Heterogeneous Firms and Trade

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  • Stephen J. Redding

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

Abstract

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.

Suggested Citation

  • Stephen J. Redding, 2011. "Theories of Heterogeneous Firms and Trade," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 77-105, September.
  • Handle: RePEc:anr:reveco:v:3:y:2011:p:77-105
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    References listed on IDEAS

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    More about this item

    Keywords

    international trade; within-industry reallocation; selection into exporting;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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