Trade policy under firm heterogeneity

Alan C. Spearot

Chapter 46 in Elgar Encyclopedia of International Trade, 2026, pp 237-242 from Edward Elgar Publishing

Abstract: The actions of firms have a profound effect on the global trading system, and consequently, influence the outward policies of nations. In this entry, we summarize the canonical firm-heterogeneity framework and how it has shaped our understanding of the motivations for trade policy. We discuss how the selection of different firms into global commerce – the key analytical insight of the literature – affects the incentives for governments to levy policy instruments. Tariffs are generally lower with heterogeneous firms, which matches the existing understanding of how heterogeneous firms amplify the gains from trade. Areas for future work are discussed, including more realistic treatments of firm heterogeneity, and allowing for large firms with market power.

Keywords: Firm heterogeneity; Tariffs; Trade policy (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035327492
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