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Trade, Capital Redistribution and Firm Structure

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  • Larry D. Qiu
  • Wen Zhou

Abstract

A model of heterogeneous firms with multiple products and two production factors (labor and capital) is used to study how trade liberalization affects firms' choices through both product and factor markets. Trade liberalization is shown to always redistribute capital toward more efficient firms and always to improve an industry's total factor productivity. However, it may reduce capital prices and cause labor productivity to drop. Low efficiency firms are affected mainly by changes in the factor market, while high efficiency firms are affected mainly by changes in the product market. In response to trade liberalization, low efficiency firms always reduce their product scope, but high efficiency firms may expand their scope. The model demonstrates the importance of the interplay between product and factor markets.

Suggested Citation

  • Larry D. Qiu & Wen Zhou, 2010. "Trade, Capital Redistribution and Firm Structure," Global COE Hi-Stat Discussion Paper Series gd10-142, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:ghsdps:gd10-142
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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd10-142.pdf
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    References listed on IDEAS

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    1. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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