Trade and Selection with Heterogeneous Firms and Perfect Competition / Xue Bai, Arpita Chatterjee, Kala Krishna, Hong Ma.

Format:

Book

Author/Creator:

Bai, Xue.

Contributor:

National Bureau of Economic Research.

Caṭarjī, Arpitā.

Krishna, Kala.

Ma, Hong.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30650.

NBER working paper series no. w30650

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin-Samuelson setting. We show that trade need not make selection in the comparative advantage sector stricter as suggested by earlier work. Selection is driven by the capital intensity in entry costs relative to production costs. If trade raises (reduces) the wage rental ratio, and entry costs are more labor intensive than production costs in a sector, then the ratio of entry cost to production costs will rise (fall) and selection will become weaker (stricter) in this sector. Moreover, we show that the central theorems of the HOS model (as well as the standard generalizations using duality) carry over in our setting.

Notes:

Print version record

November 2022.