Working Paper: NBER ID: w12192
Authors: Richard E. Baldwin; Rikard Forslid
Abstract: This paper examines the impact of trade liberalization with heterogeneous firms using the Melitz (2003) model. We find a number of novel results and effects including a Stolper-Samuelson like result and several results related to the volume of trade, which are empirically testable. We also find what might be called an anti-variety effect as the result of trade liberalization. This resonates with the often voiced criticism from antiglobalists that globalization leads the world to become more homogenous by eliminating local specialities. Nevertheless, we find that trade liberalization always leads to welfare gains in the model.
Keywords: trade liberalization; heterogeneous firms; antivariety effect
JEL Codes: H32; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade liberalization (F13) | welfare gains (D69) |
| trade liberalization (F13) | lower trade costs (F19) |
| lower trade costs (F19) | increased trade volume (F19) |
| trade liberalization (F13) | income distribution effects (D39) |
| income distribution effects (D39) | benefits for owners of exporting firms (F23) |
| income distribution effects (D39) | disadvantages for local producers (F14) |
| trade liberalization (F13) | stock market reactions (G10) |