Spillovers from foreign business conditions

Allan Sørensen*

*Corresponding author for this work

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

1 Downloads (Pure)

Abstract

The present paper explores how foreign business conditions affect domestic income, welfare, and industry structure, i.e., the international spillovers from business conditions, in a two-country one-sector heterogeneous-firms trade model. Pro-competitive improvements in foreign business conditions (e.g., a larger market, higher productivity, lower export costs or lower entry costs) increase real income and thus welfare in both countries. The positive spillovers materialize in part through intra-industry reallocations similar to those released by trade liberalization. They include stronger selection into firm survival and a larger share of firms exporting, and, thus, a shift of activity towards more productive firms and a subsequent increase in aggregate productivity. The change in the share of domestic expenditure is shown to be a sufficient statistic for how changes in foreign business conditions affect domestic real income, welfare, and industry structure. Finally, the paper highlights that the sign of the spillover is highly dependent on whether the general equilibrium is restored through standard home market effects or through adjustment in the relative wage.

Original languageEnglish
JournalReview of World Economics
Volume158
Issue3
Pages (from-to)779-814
Number of pages36
ISSN1610-2878
DOIs
Publication statusPublished - Aug 2022

Keywords

  • Business conditions
  • Heterogeneous firms
  • Industry dynamics
  • International spillovers
  • Trade

Fingerprint

Dive into the research topics of 'Spillovers from foreign business conditions'. Together they form a unique fingerprint.

Cite this