Working Paper: NBER ID: w18652
Authors: Marc J. Melitz; Stephen J. Redding
Abstract: This paper reviews the new approach to international trade based on firm heterogeneity in differentiated product markets. This approach explains a variety of features exhibited in disaggregated trade data, including the higher productivity of exporters relative to non-exporters, within-industry reallocations of resources following trade liberalization, and patterns of trade participation across firms and destination markets. Accounting for these empirical patterns reveals new mechanisms through which the aggregate economy is affected by trade liberalization, including endogenous increases in average industry and firm productivity.
Keywords: firm heterogeneity; international trade; productivity; trade liberalization
JEL Codes: F10; F12; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade liberalization (F13) | within-industry reallocations of resources (L16) |
| within-industry reallocations of resources (L16) | average industry productivity (L69) |
| trade liberalization (F13) | average industry productivity (L69) |
| low-productivity firms exit the market (L19) | high-productivity firms expand into export markets (F12) |
| exporters (F10) | larger and more productive than non-exporters (F10) |
| increase in firm scale from entering export markets (L25) | enhances return on productivity-enhancing investments (J24) |
| enhances return on productivity-enhancing investments (J24) | raises firm productivity (O49) |