Publication
Open Access

Firm Heterogeneity and the Two Sources of Gains from Trade

Loading...
Thumbnail Image
License
Full-text via DOI
ISBN
ISSN
1725-6704
Issue Date
Type of Publication
LC Subject Heading
Other Topic(s)
EUI Research Cluster(s)
Initial version
Published version
Succeeding version
Preceding version
Published version part
Earlier different version
Initial format
Author(s)
Citation
EUI ECO; 2006/38
Cite
AGUR, Itai, Firm Heterogeneity and the Two Sources of Gains from Trade, EUI ECO, 2006/38 - https://hdl.handle.net/1814/6683
Abstract
Recent empirical work identies two main channels through which consumers benefit from trade. Trade liberalization lowers prices, while it raises product variety. This paper develops the first model that connects both channels and interprets their interaction. It shows that heterogeneity in firm productivity is the source behind both. Upon liberalization efficient exporters enter, pushing out the least efficient domestic firms. Two countervailing forces emerge, both stylized facts. Liberalization leaves a more concentrated market. But exporters offer more variety than the firms that they replace. Remarkably, total variety unambiguously increases. Exploration of comparative statics leads to an intuitive explanation.
Table of Contents
Additional Information
External Links
Version
Research Projects
Sponsorship and Funder Information