English, Article, Journal or magazine article edition: The selection effect of two-way trade in the Melitz model: an alternative approach Potin, Jacques

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Bookmark: http://trove.nla.gov.au/version/58220
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • The selection effect of two-way trade in the Melitz model: an alternative approach
Author
  • Potin, Jacques
Physical Description
  • preprint
Notes
  • This paper studies the influential Melitz model of trade with heterogeneous firms using an alternative, intuitive approach. Contrary to what is often argued, it is an increase in product market competition that drives the bad firms out: with two-way trade, entry by foreign firms is not compensated by a “sufficient” reduction in the mass of surviving firms. To illustrate this, we decompose the total effect of trade in two partial effects: a domestic-profit-reducing effect due to foreign market penetration by the most productive firms; an average-profit-reducing effect due to the payment of the fixed export costs. We also provide the new prediction that trade generally leads to (weakly) less entry in the industry. This clarifies key interpretation issues in a prolific literature.
  • Firm Heterogeneity; Intra-industry Trade; Selection
  • RePEc:ebg:essewp:dr-09001
Language
  • English
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