Heterogeneous Firms, Trade, and Economic Policy: Insights from a Simple Two-Sector Model
The robust empirical finding that exporting firms are systematically different from firms that merely serve domestic consumers has inspired the development of a new brand of trade theory, the theory of heterogeneous firms and trade. The establishment of a canonical model due to Melitz (2003) has induced a recent wave of research which explores various policy issues and policy instruments. This paper uses a simple tractable two-sector model of monopolistic competition as unifying framework to bring out key lessons of this recent research. We address the gains from trade, country asymmetries involving technology potentials, market sizes, trade openness and various business conditions as well as the international repercussions that emerge when countries non-cooperatively choose entry subsidies and their levels of basic research. We also reinvestigate the process of market exit.
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References listed on IDEAS
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- DEL GATTO, Massimo & MION, Giordano & OTTAVIANO, Gianmarco I.P., 2006.
"Trade integration, firm selection and the costs of non-Europe,"
CORE Discussion Papers
2006061, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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- Massimo Del Gatto & Giordano Mion & Gianmarco I.P. Ottaviano, 2006. "Trade Integration, Firm Selection and the Costs of Non-Europe," Development Working Papers 218, Centro Studi Luca d'Agliano, University of Milano.
- Del Gatto, Massimo & Mion, Giordano & Ottaviano, Gianmarco, 2006. "Trade Integration, Firm Selection and the Costs of Non-Europe," CEPR Discussion Papers 5730, C.E.P.R. Discussion Papers.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- Venables, Anthony J, 1987. "Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model," Economic Journal, Royal Economic Society, vol. 97(387), pages 700-717, September. Full references (including those not matched with items on IDEAS)
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