Working Paper: CEPR ID: DP7961
Authors: Stephen J. Redding
Abstract: This paper reviews the recent theoretical literature on heterogeneous firms and trade, which emphasizes firm selection into international markets and reallocations of resources across firms. We discuss the empirical challenges that motivated this research and its relationship to traditional trade theories. We examine the implications of firm heterogeneity for comparative advantage, market size, aggregate trade, the welfare gains from trade, and the relationship between trade and income distribution. While a number of studies examine the endogenous response of firm productivity to trade liberalization, modeling internal firmorganization and the origins of firm heterogeneity remain interesting areas of ongoing research.
Keywords: heterogeneous firms; international trade; selection into exporting; within-industry reallocation
JEL Codes: F12; F16; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade liberalization (F13) | average industry productivity (L69) |
| trade liberalization (F13) | exit of low productivity firms (J63) |
| trade liberalization (F13) | expansion of high productivity firms (L25) |
| exit of low productivity firms (J63) | average industry productivity (L69) |
| expansion of high productivity firms (L25) | average industry productivity (L69) |
| trade liberalization (F13) | within-industry reallocations of resources (L16) |
| within-industry reallocations of resources (L16) | average industry productivity (L69) |
| selection into exporting (F10) | average industry productivity (L69) |