Trade and Industrial Policies with Heterogeneous Firms: The Role of Country Asymmetries

Michael P. Pflüger () and Stephan Russek ()
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Michael P. Pflüger: University of Würzburg
Stephan Russek: University of Passau

No 5387, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper explores the role of country asymmetries for trade and industrial policies with heterogeneous firms. Our analysis delivers a number of novel results. First, trade policies, infrastructure policies and industrial policies which improve the business conditions in one country have negative productivity and welfare effects on the trading partner. Second, symmetric trade liberalization is immiserizing for a trading partner whose business conditions are inferior. Third, there are gains from trade even for a country whose monopolistically competitive sector with heterogeneous firms is wiped out by the switch from autarky to trade.

Keywords: business conditions; industrial policies; trade policies; welfare; firm heterogeneity (search for similar items in EconPapers)
JEL-codes: F12 F13 F15 L25 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2010-12
New Economics Papers: this item is included in nep-bec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published in revised form in: Review of International Economics, 2014, 22 (1), 170-188

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