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Comparative Advantage and Heterogeneous Firms

Comparative Advantage and Heterogeneous Firms This paper examines how country, industry, and firm characteristics interact in general equilibrium to determine nations' responses to trade liberalization. When firms possess heterogeneous productivity, countries differ in relative factor abundance, and industries vary in factor intensity, falling trade costs induce reallocations of resources both within and across industries and countries. These reallocations generate substantial job turnover in all sectors, spur relatively more creative destruction in comparative advantage industries than in comparative disadvantage industries, and magnify ex ante comparative advantage to create additional welfare gains from trade. The improvements in aggregate productivity as countries liberalize dampen and can even reverse the real-wage losses of scarce factors. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Economic Studies Oxford University Press

Comparative Advantage and Heterogeneous Firms

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Publisher
Oxford University Press
Copyright
© Published by Oxford University Press.
Subject
Original Articles
ISSN
0034-6527
eISSN
1467-937X
DOI
10.1111/j.1467-937X.2007.00413.x
Publisher site
See Article on Publisher Site

Abstract

This paper examines how country, industry, and firm characteristics interact in general equilibrium to determine nations' responses to trade liberalization. When firms possess heterogeneous productivity, countries differ in relative factor abundance, and industries vary in factor intensity, falling trade costs induce reallocations of resources both within and across industries and countries. These reallocations generate substantial job turnover in all sectors, spur relatively more creative destruction in comparative advantage industries than in comparative disadvantage industries, and magnify ex ante comparative advantage to create additional welfare gains from trade. The improvements in aggregate productivity as countries liberalize dampen and can even reverse the real-wage losses of scarce factors.

Journal

The Review of Economic StudiesOxford University Press

Published: Jan 1, 2007

Keywords: JEL classification F11 F13 F14 F16

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