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Fixed Export Cost heterogeneity, Trade and Welfare

Philipp Schröder and Jan Jørgensen

MPRA Paper from University Library of Munich, Germany

Abstract: Recent literature on the workhorse model of intra-industry trade has explored heterogeneous cost structures at the firm level. These approaches have proven to add realism and predictive power. This paper presents a new and simple heterogeneous-firms specification. We develop a symmetric two-country intra-industry trade model where firms are of two different marginal costs types and where fixed export costs are heterogeneous across firms. This model traces many of the stylized facts of international trade. However, we find that with heterogeneous fixed export costs there exists a positive bilateral tariff that maximizes national and world welfare.

Keywords: Intra-industry trade; trade liberalization; monopolistic competition; heterogeneous firms; welfare; protectionism (search for similar items in EconPapers)
JEL-codes: F15 F13 F12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2007
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