The Microeconomics of New Trade Models

Martin Alfaro

No 2019-2, Working Papers from University of Alberta, Department of Economics

Abstract: I provide a uni ed framework to analyze models of monopolistic competition with firm heterogeneity a la Melitz under standard demands and any productivity distribution. By using this methodology, I disentangle the effects of trade liberalizations on the domestic market in terms of new export opportunities and tougher import competition. I show that while the former entails pro-competitive effects, contrary to what might be expected, tougher import competition has no impact on either domestic firms' prices, quantities or their survival productivity cutoff; it only affects the mass of domestic incumbents. The results applied to the case of two big economies imply that a unilateral liberalization only entails worse export conditions for the liberalizing country, thus explaining the Metzler paradox found under this setup. In a model in which firms have knowledge of their productivity and are heterogeneous, I show that the disciplinary effects from the import-competition channel are reactivated.

Keywords: monopolistic competition; Melitz model; import competition; export opportunities; trade liberalization (search for similar items in EconPapers)
JEL-codes: D43 F10 F12 L13 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2019-03-12
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The microeconomics of new trade models (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2019_002

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