Working Paper: NBER ID: w11471
Authors: Richard Baldwin
Abstract: This paper sets out a basic heterogeneous-firms trade model that is closely akin to Melitz (2003). The positive and normative properties of the model are studied in a manner intended to highlight the core economic logic of the model. The paper also studies the impact of greater openness at the firm-level and aggregate level, focusing on changes in the number and type of firms, trade volumes and prices, and productivity effects. The normative effects of liberalisation are also studied and here the paper focuses on aggregate gains from trade, and income redistribution effects, showing inter alia that the model is marked by a Stolper-Samuelson like effect. A number of empirically testable hypotheses are also developed. These concern the impact of greater openness on the firm-level trade pattern, the variance of unit-prices, the stock market valuation of firms according to size, and the lobbying behaviour by size.
Keywords: No keywords provided
JEL Codes: F1; F2; F3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| greater openness (O36) | changes in the number and type of firms (L19) |
| changes in the number and type of firms (L19) | trade volumes (F10) |
| greater openness (O36) | trade volumes (F10) |
| greater openness (O36) | prices (P22) |
| greater openness (O36) | income redistribution (H23) |
| greater openness (O36) | aggregate gains from trade (F14) |
| greater openness (O36) | variance of unit prices (C29) |
| firm size influences lobbying behavior (L25) | support for liberalization (E69) |
| firm size influences lobbying behavior (L25) | oppose liberalization (L49) |