Heterogeneous Firms and Trade
This paper reviews the new approach to international trade based on firm heterogeneity in differentiated product markets. This approach explains a variety of features exhibited in disaggregated trade data, including the higher productivity of exporters relative to non-exporters, within-industry reallocations of resources following trade liberalization, and patterns of trade participation across firms and destination markets. Accounting for these empirical patterns reveals new mechanisms through which the aggregate economy is affected by trade liberalization, including endogenous increases in average industry and firm productivity.
We are grateful to Treb Allen, Costas Arkolakis, Ariel Burstein, Davin Chor, Arnaud Costinot, Swati Dhingra, Gene Grossman, Keith Head, Elhanan Helpman, Andrei Levchenko, Thierry Mayer, Gianmarco Ottaviano, Esteban Rossi-Hansberg and participants at the Handbook of International Economics conference in Cambridge, MA in September 2012 for helpful comments and suggestions. We are also grateful to Cheng Chen for research assistance. The authors are responsible for any remaining limitations. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Handbook of International Economics Volume 4, 2014, Pages 1–54 Handbook of International Economics Cover image Chapter 1 – Heterogeneous Firms and Trade ☆ Marc J. Melitza, b, c, Stephen J. Reddingb, c, d