Trade Liberalization, Firm Selection, and Variety Growth
Review of International Economics, 2010, 18, 3, 582-594
AGUR, Itai, Trade Liberalization, Firm Selection, and Variety Growth, Review of International Economics, 2010, 18, 3, 582-594 - http://hdl.handle.net/1814/16381
Retrieved from Cadmus, EUI Research Repository
Recent empirical findings indicate that when trade is liberalized both firm selection takes place and product variety increases. Each of these two stylized facts has its own seminal theory. But how can they arise together? This paper presents a model of heterogeneous, multi-variety firms that provides an intuitive explanation. When trade is liberalized efficient foreign exporters enter and push out the least efficient domestic firms. Fewer firms remain in total. But exporters endogenously offer more variety than domestic firms. The entry of variety-rich foreign firms unambiguously dominates the decrease in the number of firms. Thus, total variety increases.
Cadmus permanent link: http://hdl.handle.net/1814/16381
Full-text via DOI: 10.1111/j.1467-9396.2010.00886.x
Files associated with this item
There are no files associated with this item.