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Trade Liberalization with Heterogeneous Firms

  • Richard E. Baldwin
  • Rikard Forslid

This paper examines the various aspects of trade liberalization with heterogeneous firms using the Melitz (2003 ) model. We find a number of novel results and effects including a Stolper-Samuelson-like result and several results related to the volume of trade, which are empirically testable. We also analyze what might be called an anti-variety effect as the result of trade liberalization. We show that this effect is most pronounced for small countries. This resonates with the often voiced criticism from antiglobalists that globalization leads the world to become more homogeneous by eliminating local specialties. Nevertheless, we find that trade liberalization always leads to welfare gains in the model. Copyright © 2010 Blackwell Publishing Ltd.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9361.2010.00545.x
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Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 14 (2010)
Issue (Month): 2 (05)
Pages: 161-176

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Handle: RePEc:bla:rdevec:v:14:y:2010:i:2:p:161-176
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  1. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  2. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
  3. Wang, Zhen Kun & Winters, L. Alan, 1991. "The Trading Potential of Eastern Europe," CEPR Discussion Papers 610, C.E.P.R. Discussion Papers.
  4. Andrew Bernard & J. Bradford Jensen & Peter Schott, 2003. "Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics," IFS Working Papers W03/10, Institute for Fiscal Studies.
  5. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting Trade: Firms, Industries, and Export Destinations," NBER Working Papers 10344, National Bureau of Economic Research, Inc.
  6. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  7. Richard E. Baldwin & Frédéric Robert-Nicoud, 2006. "Trade and Growth with Heterogeneous Firms," CEP Discussion Papers dp0727, Centre for Economic Performance, LSE.
  8. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  9. Richard E. Baldwin & Toshihiro Okubo, 2006. "Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting," Journal of Economic Geography, Oxford University Press, vol. 6(3), pages 323-346, June.
  10. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  11. Schmitt, Nicolas & Yu, Zhihao, 2001. "Economies of scale and the volume of intra-industry trade," Economics Letters, Elsevier, vol. 74(1), pages 127-132, December.
  12. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2003. "Export versus FDI," NBER Working Papers 9439, National Bureau of Economic Research, Inc.
  13. Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
  14. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-Francois Tissse, 1999. "Agglomeration and Trade Revisited," CIRJE F-Series CIRJE-F-65, CIRJE, Faculty of Economics, University of Tokyo.
  15. Catia Montagna, 1998. "Efficiency Gaps, Love of Variety and International Trade," Dundee Discussion Papers in Economics 090, Economic Studies, University of Dundee.
  16. Richard Baldwin, 2005. "Heterogeneous Firms and Trade: Testable and Untestable Properties of the Melitz Model," NBER Working Papers 11471, National Bureau of Economic Research, Inc.
  17. Feenstra, Robert & Rose, Andrew K, 1997. "Putting Things in Order: Patterns of Trade Dynamics and Macroeconomics," CEPR Discussion Papers 1629, C.E.P.R. Discussion Papers.
  18. Richard E. Baldwin & Rikard Forslid, 2010. "Trade Liberalization with Heterogeneous Firms," Review of Development Economics, Wiley Blackwell, vol. 14(2), pages 161-176, 05.
  19. Bee Yan Aw & Sukkyun Chung & Mark J. Roberts, 1998. "Productivity and the Decision to Export: Micro Evidence from Taiwan and South Korea," NBER Working Papers 6558, National Bureau of Economic Research, Inc.
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