Heterogeneous Firms, Trade, and Economic Policy: Insights from a Simple Two-Sector Model
Michael P. Pflüger (michael.pflueger@uni-wuerzburg.de) and
Stephan Russek (stephan.russek@uni-passau.de)
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Michael P. Pflüger: University of Würzburg
Stephan Russek: University of Passau
No 6109, IZA Discussion Papers from Institute of Labor Economics (IZA)
Abstract:
The robust empirical finding that exporting firms are systematically different from firms that merely serve domestic consumers has inspired the development of a new brand of trade theory, the theory of heterogeneous firms and trade. The establishment of a canonical model due to Melitz (2003) has induced a recent wave of research which explores various policy issues and policy instruments. This paper uses a simple tractable two-sector model of monopolistic competition as unifying framework to bring out key lessons of this recent research. We address the gains from trade, country asymmetries involving technology potentials, market sizes, trade openness and various business conditions as well as the international repercussions that emerge when countries non-cooperatively choose entry subsidies and their levels of basic research. We also reinvestigate the process of market exit.
Keywords: monopolistic competition; economic policies and welfare; firm heterogeneity (search for similar items in EconPapers)
JEL-codes: F12 F13 F15 L25 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2011-11
New Economics Papers: this item is included in nep-int
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Citations:
Published - published in revised form in: S. Beugelsdijk , S. Brakman, H. van Ees and H. Garretsen (eds.), Firms in the International Economy - Firm Heterogeneity Meets International Business, MIT-Press 2013
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