EconPapers    
Economics at your fingertips  
 

The selection effect of two-way trade in the Melitz model: an alternative approach

Jacques Potin ()
Additional contact information
Jacques Potin: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 50105, 95021 CERGY-PONTOISE Cedex , FRANCE, ,, http://www.essec.edu

No DR 09001, ESSEC Working Papers from ESSEC Research Center, ESSEC Business School

Abstract: This paper studies the influential Melitz model of trade with heterogeneous firms using an alternative, intuitive approach. Contrary to what is often argued, it is an increase in product market competition that drives the bad firms out: with two-way trade, entry by foreign firms is not compensated by a “sufficient” reduction in the mass of surviving firms. To illustrate this, we decompose the total effect of trade in two partial effects: a domestic-profit-reducing effect due to foreign market penetration by the most productive firms; an average-profit-reducing effect due to the payment of the fixed export costs. We also provide the new prediction that trade generally leads to (weakly) less entry in the industry. This clarifies key interpretation issues in a prolific literature.

Keywords: Firm Heterogeneity; Intra-industry Trade; Selection (search for similar items in EconPapers)
JEL-codes: F10 F12 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2009-04
New Economics Papers: this item is included in nep-com, nep-int and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.essec.fr/faculty/showDeclFileRes.do?declId=8409&key=__workpaper__ (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.essec.fr/faculty/showDeclFileRes.do?declId=8409&key=__workpaper__ [301 Moved Permanently]--> https://www.essec.edu/fr/faculty/showDeclFileRes.do?declId=8409&key=__workpaper__)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebg:essewp:dr-09001

Access Statistics for this paper

More papers in ESSEC Working Papers from ESSEC Research Center, ESSEC Business School ESSEC Research Center, BP 105, 95021 Cergy, France. Contact information at EDIRC.
Bibliographic data for series maintained by Sophie Magnanou ().

 
Page updated 2022-10-02
Handle: RePEc:ebg:essewp:dr-09001