Theories of Heterogeneous Firms and Trade

Stephen J. Redding

NBER Working Paper No. 16562
Issued in December 2010
NBER Program(s):   ITI

This paper reviews the recent theoretical literature on heterogeneous firms and trade, which emphasizes firm selection into international markets and reallocations of resources across firms. We discuss the empirical challenges that motivated this research and its relationship to traditional trade theories. We examine the implications of firm heterogeneity for comparative advantage, market size, aggregate trade, the welfare gains from trade, and the relationship between trade and income distribution. While a number of studies examine the endogenous response of firm productivity to trade liberalization, modeling internal firm organization and the origins of firm heterogeneity remain interesting areas of ongoing research.

Published: Stephen J. Redding, 2011. "Theories of Heterogeneous Firms and Trade," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 77-105, 09.

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