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Firms and Global Production

Listed author(s):
  • Costas Arkolakis

    (Yale University; Natalia Ramondo, Arizona State University; Andres Rodriguez-Clare, Pennsylvania State University; Stephen Yeaple, Pennsylvania State University)

We develop a model monopolistic competition model of trade and multinational production (MP). Firms receive an idiosyncratic productivity vector that is specified from a multivariate distribution and they also face distance related trade and MP costs. Thus, individual firms face a proximity—versus—comparative advantage trade-off to serve individual locations from close-by or high productivity locations. The model gives simple structural expressions for bilateral trade and MP. We use these expressions to calibrate the model across a set of OECD countries. We quantify the implications of openness to trade and MP on the allocation of employment between production and innovation, as well as the implications for wages, profits and overall welfare.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1399.

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Date of creation: 2011
Handle: RePEc:red:sed011:1399
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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