Firm Dynamics and Trade

George Alessandria, Costas Arkolakis and Kim Ruhl

Annual Review of Economics, 2021, vol. 13, issue 1, 253-280

Abstract: We review the literature that studies the dynamics of firms in foreign markets, at both the intensive and extensive margins, and their aggregate implications. We first summarize a set of micro facts on exporter entry, expansion, contraction, and exit and several macro facts about the response of aggregate trade flows to trade-policy and business-cycle shocks. We then present the canonical model developed to account for these facts and discuss its connection to the empirical evidence. We show how three model features—future uncertain profits, an investment in market access, and high depreciation of that access upon exit—generate transition dynamics and long-run aggregate outcomes from a cut in tariffs. The model and its extensions contribute to our understanding of trade integration and the evolution of future trade barriers. We discuss the key challenges faced by the canonical model, its possible extensions, and applications of the framework to recent global events.

Keywords: trade liberalization; welfare; exports (search for similar items in EconPapers)
JEL-codes: F1 F12 F14 F15 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (21)

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Working Paper: Firm Dynamics and Trade (2020)
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DOI: 10.1146/annurev-economics-090919-025159

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