The long-term impact of trade with firm heterogeneity
Ourens,Guzmán
Ourens,Guzmán
Abstract
This paper explores the welfare effects of openness in a setting with firm heterogeneity and country asymmetry and presents results in terms of the well-known formula from Arkolakis et al. (Am Econ Rev 102(1):94–130, 2012). By allowing agents to save and the economy to grow, new channels for the welfare effects of openness appear, since firm selection affects the value of accumulated savings and the average efficiency of the economy, and therefore its future growth rate. Country asymmetry yields differentiated, and in some cases opposite, results between countries. In line with the empirical literature, net welfare effects in each region depend on countries’ specific conditions and losses may occur. A numerical exercise fits the model to the UK and EU economies to show the magnitude and direction that each effect can take if trade barriers increase between them. It is shown that welfare losses for UK consumers can be greatly underestimated if asymmetries and dynamics are removed from the analysis.
Description
Funding Information: I gratefully acknowledge financial support from Fonds Nationale de la Recherche Scientifique (Belgium) and Tilburg University (The Netherlands). I am thankful to Raouf Boucekkine, Svetlana Demidova, Hélène Latzer, Florian Mayneris, Yasusada Murata, Mathieu Parenti, Frédéric Robert-Nicoud, Thomas Sampson, Marcel Vaillant, Gonzague Vannoorenberghe and participants in seminars at the Université catolique de Louvain, Aix-Marseille School of Economics, Paris School of Economics, the Warwick Economic Growth Workshop, the 14th GEP-CEPR Graduate Conference at Nottingham and the Industrial Organization and Spatial Economics Conference at St. Petersburg for their valuable comments. Any remaining errors are my own. Publisher Copyright: © 2020, The Author(s). Copyright: Copyright 2020 Elsevier B.V., All rights reserved.
Date
2020-11-01
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Volume Title
Publisher
Research Projects
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Keywords
Asymmetric countries, Expanding varieties, Firm heterogeneity, Trade liberalization, Welfare
Citation
Ourens, G 2020, 'The long-term impact of trade with firm heterogeneity', Review of World Economics, vol. 156, no. 4, pp. 887-919. https://doi.org/10.1007/s10290-020-00384-0
License
info:eu-repo/semantics/openAccess