Fixed export cost heterogeneity, trade and welfare

TY - JOUR

T1 - Fixed export cost heterogeneity, trade and welfare

AU - Jørgensen, Jan Guldager

AU - Schröder, Philipp J.H.

PY - 2008

Y1 - 2008

N2 - Recent literature on the workhorse model of intra-industry trade has explored heterogeneous cost structures at the firm level. These approaches have proven to add realism and predictive power. This paper presents a new and simple heterogeneous-firms specification. We develop a symmetric two-country intra-industry trade model where firms are of two different marginal costs types and where fixed export costs are heterogeneous across firms. This model traces many of the stylized facts of international trade. However, we find that with heterogeneous fixed export costs thereexists a positive bilateral tariff that maximizes national and world welfare.

AB - Recent literature on the workhorse model of intra-industry trade has explored heterogeneous cost structures at the firm level. These approaches have proven to add realism and predictive power. This paper presents a new and simple heterogeneous-firms specification. We develop a symmetric two-country intra-industry trade model where firms are of two different marginal costs types and where fixed export costs are heterogeneous across firms. This model traces many of the stylized facts of international trade. However, we find that with heterogeneous fixed export costs thereexists a positive bilateral tariff that maximizes national and world welfare.

KW - Intra-industry trade

KW - Liberalization

KW - Monopolistic competition

KW - Heterogeneous firms

KW - Protectionism

U2 - 10.1016/j.euroecorev.2008.01.004

DO - 10.1016/j.euroecorev.2008.01.004

M3 - Journal article

SN - 0014-2921

VL - 52

SP - 1256

EP - 1274

JO - European Economic Review

JF - European Economic Review

IS - 7

ER -