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Firm heterogeneity, comparative advantage and the transfer problem

Federico Trionfetti

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Abstract: This paper studies the transfer problem in a model featuring comparative advantage, mo-nopolistic competition, trade costs, and firm heterogeneity in factor intensity. The results are very different from those of the previous literature. First, a transfer creates a secondary burden in situations where the neoclassical version of the Heckscher-Ohlin model would not. Second, a transfer affects wage inequality. Third, a transfer is not neutral to world welfare. Fourth, floating exchange rates do not substitute for deflation. Fifth, a simulation exercise shows that the quantitative effects of trade imbalances are comparable in magnitude to those arising from major trade agreements.

Date: 2018-09
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Published in European Economic Review, Elsevier, 2018, 108, pp.246 - 258. ⟨10.1016/j.euroecorev.2018.07.007⟩

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DOI: 10.1016/j.euroecorev.2018.07.007

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