Cross-Sector Spillover Effects of Trade Liberalization
This work studies the effects of trade liberalization in a two-country two-sector model, with monopolistic competition and heterogeneous firms in one sector and perfect competition in the other. It is established that the spillover effect of the reduction in a sector's variable trade cost on the average productivity of firms in the other sector is sector dependent. The average productivity of firms increases and the number of firms decreases in the comparative advantage sector in response to the trade liberalization in the other sector. Conversely, the average productivity of firms decreases and the number of firms increases in the comparative disadvantage sector.
Volume (Year): 39 (2013)
Issue (Month): 1 ()
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