Firm Dynamics and Trade

George Alessandria, Costas Arkolakis and Kim Ruhl

No 27934, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We review the literature that studies the dynamics of firms in foreign markets, both at 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 macro facts about the response of aggregate trade flows to trade-policy and business-cycle shocks. We then present the canonical model developed in the literature 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 the dynamics of trade integration and the evolution of future trade barriers. We discuss the key challenges faced by the canonical model, possible extensions, and applications of the framework to recent global events.

JEL-codes: F1 F11 F12 F14 F15 F41 F61 F62 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-dge and nep-int
Note: IFM ITI
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Citations: View citations in EconPapers (5)

Published as George Alessandria & Costas Arkolakis & Kim J. Ruhl, 2021. "Firm Dynamics and Trade," Annual Review of Economics, vol 13(1), pages 253-280.

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Journal Article: Firm Dynamics and Trade (2021)
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