Theories of Heterogeneous Firms and Trade

Posted: 31 Aug 2011

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Date Written: September 2011

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.

Suggested Citation

Redding, Stephen J., Theories of Heterogeneous Firms and Trade (September 2011). Annual Review of Economics, Vol. 3, pp. 77-105, 2011, Available at SSRN: https://ssrn.com/abstract=1920113 or http://dx.doi.org/10.1146/annurev-economics-111809-125118

Stephen J. Redding (Contact Author)

Princeton University ( email )

Princeton, NJ 08544-1021
United States

HOME PAGE: http://www.princeton.edu/~reddings/

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