Trade and Selection with Heterogeneous Firms and Perfect Competition

Xue Bai (xbai@brocku.ca), Arpita Chatterjee, Kala Krishna (kmk4@psu.edu) and Hong Ma

No 30650, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin-Samuelson setting. We show that trade need not make selection in the comparative advantage sector stricter as suggested by earlier work. Selection is driven by the capital intensity in entry costs relative to production costs. If trade raises (reduces) the wage rental ratio, and entry costs are more labor intensive than production costs in a sector, then the ratio of entry cost to production costs will rise (fall) and selection will become weaker (stricter) in this sector. Moreover, we show that the central theorems of the HOS model (as well as the standard generalizations using duality) carry over in our setting.

JEL-codes: F0 F11 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-ind and nep-int
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