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Trade and Industrial Policies with Heterogeneous Firms: The Role of Country Asymmetries

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  • Michael Pflüger
  • Stephan Russek

Abstract

This paper explores the role of country asymmetries for trade and industrial policies with heterogeneous firms. The analysis delivers a number of novel results. First, trade policies, infrastructure policies and industrial policies which improve the business conditions in one country have negative productivity and welfare effects on the trading partner. Second, symmetric trade liberalization is immiserizing for a trading partner whose business conditions are inferior. Third, there are gains from trade even for a country whose monopolistically competitive sector with heterogeneous firms is wiped out by switching from autarky to trade.

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  • Michael Pflüger & Stephan Russek, 2014. "Trade and Industrial Policies with Heterogeneous Firms: The Role of Country Asymmetries," Review of International Economics, Wiley Blackwell, vol. 22(1), pages 170-188, February.
    • Handle: RePEc:bla:reviec:v:22:y:2014:i:1:p:170-188
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    File URL: http://hdl.handle.net/10.1111/roie.12104
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