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Fixed export cost heterogeneity, trade and welfare

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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 there
exists a positive bilateral tariff that maximizes national and world welfare.
Original languageEnglish
JournalEuropean Economic Review
Volume52
Issue7
Pages (from-to)1256-1274
Number of pages18
ISSN0014-2921
DOIs
Publication statusPublished - 2008

    Research areas

  • Intra-industry trade, Liberalization, Monopolistic competition, Heterogeneous firms, Protectionism

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