Working Paper: NBER ID: w30650
Authors: Xue Bai; Arpita Chatterjee; Kala Krishna; Hong Ma
Abstract: This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin-Samuelson setting. We show that trade need not make selection in the comparative advantage sector stricter as suggested by earlier work. Selection is driven by the capital intensity in entry costs relative to production costs. If trade raises (reduces) the wage rental ratio, and entry costs are more labor intensive than production costs in a sector, then the ratio of entry cost to production costs will rise (fall) and selection will become weaker (stricter) in this sector. Moreover, we show that the central theorems of the HOS model (as well as the standard generalizations using duality) carry over in our setting.
Keywords: No keywords provided
JEL Codes: F0; F11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade (F19) | selection process (C52) |
| entry costs (L11) | wage rental ratio (D33) |
| wage rental ratio (D33) | selection (Y60) |
| entry costs (labor-intensive) (J39) | selection weaker (Y60) |
| entry costs (less labor-intensive) (L11) | selection stricter (C52) |