Working Paper: NBER ID: w16562
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 firm organization and the origins of firm heterogeneity remain interesting areas of ongoing research.
Keywords: Heterogeneous Firms; Trade; Firm Productivity; International Markets
JEL Codes: F1; L80
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade liberalization (F13) | exit of low productivity firms (J63) |
| trade liberalization (F13) | expansion of high productivity firms (L25) |
| trade liberalization (F13) | overall industry productivity (L69) |
| exit of low productivity firms (J63) | reallocation of resources to high productivity firms (R38) |
| reallocation of resources to high productivity firms (R38) | increase in overall industry productivity (O49) |
| trade liberalization (F13) | changes in firm productivity (O49) |
| changes in firm productivity (O49) | shifts in wage distribution (J31) |