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

  • Michael Pflüger
  • Stephan Russek
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    This paper explores the role of country asymmetries for trade and industrial policies with heterogeneous firms. Our 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 the switch from autarky to trade.

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    File Function: First version, 2011
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    Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 094.

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    Length: 27 pages
    Date of creation: Jan 2011
    Date of revision:
    Handle: RePEc:bav:wpaper:094_pfluegerrussek
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    9. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Harvard Institute of Economic Research Working Papers 2118, Harvard - Institute of Economic Research.
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    18. Davin Chor, 2007. "Subsidies for FDI: Implications from a Model with Heterogeneous Firms," Working Papers 04-2007, Singapore Management University, School of Economics.
    19. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005. "Economic Geography and Public Policy," Economics Books, Princeton University Press, edition 1, number 7524, 01-2013.
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