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Theories of Heterogeneous Firms and Trade

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  • Stephen Redding

Abstract

This paper 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. While a number of studies examine the endogenous response of firm productivity to trade liberalization, modelling internal firm organization and the origins of firm heterogeneity remain interesting areas of ongoing research.

Suggested Citation

  • Stephen Redding, 2010. "Theories of Heterogeneous Firms and Trade," CEP Discussion Papers dp0994, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0994
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    Keywords

    Heterogeneous firms; international trade; within-industry reallocation; selection into exporting;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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