The long-term impact of trade with firm heterogeneity

Guzmán Ourens

No 2017004, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: After the emergence and development of heterogeneous firm trade models, some (most notably Arkolakis, Costinot and Rodriguez-Clare 2012, ACR) have argue that a family of these models (e.g. a Melitz-type model with Pareto distributed firms) do not add to the evaluation of welfare effects of freer trade. In this paper we expand that model in two directions: we introduce a very simple growth mechanism and we allow for asymmetric countries. Introducing simple dynamics in the heterogeneous firm model adds new static and dynamic effects to the well-known decrease in prices that increases welfare in the static model. The constant level of nominal expenditure is affected as firm selection changes the average value of firms which modifies consumers' resource constraint. The growth rate of real consumption is also affected by firm selection since greater average efficiency means a larger amount of resources are required to create a new variety. Country asymmetry yields differentiated results between countries. We provide a welfare formula comparable to that in ACR to show how the new mechanisms can interplay in our model and highlight the effects of firm heterogeneity in this context. In all cases net welfare results depend on parameter values which highlights how much welfare evaluations depend on region's characteristics.

Keywords: firm heterogeneity; expanding varieties; asymmetric countries; welfare (search for similar items in EconPapers)
JEL-codes: F12 F15 H32 O40 (search for similar items in EconPapers)
Pages: 29
Date: 2017-02-24
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-int
References: Add references at CitEc
Citations:

Downloads: (external link)
http://sites.uclouvain.be/econ/DP/IRES/2017004.pdf (application/pdf)

Related works:
Journal Article: The long-term impact of trade with firm heterogeneity (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2017004

Access Statistics for this paper

More papers in LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Virginie LEBLANC ().