Theories of heterogeneous firms and trade

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Abstract

This article 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. Although 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.

Original languageEnglish (US)
Pages (from-to)77-105
Number of pages29
JournalAnnual Review of Economics
Volume3
DOIs
StatePublished - 2011

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • International trade
  • Selection into exporting
  • Within-industry reallocation

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