We develop a monopolistically competitive model of trade with firm heterogeneity―in terms of productivity
differences―and endogenous differences in the “toughness” of competition across markets―in
terms of the number and average productivity of competing firms. We analyse how these features vary
across markets of different size that are not perfectly integrated through trade; we then study the effects of
different trade liberalization policies. In our model, market size and trade affect the toughness of competition,
which then feeds back into the selection of heterogeneous producers and exporters in that market.
Aggregate productivity and average mark-ups thus respond to both the size of a market and the extent
of its integration through trade (larger, more integrated markets exhibit higher productivity and lower
mark-ups). Our model remains highly tractable, even when extended to a general framework with multiple
asymmetric countries integrated to different extents through asymmetric trade costs. We believe this
provides a useful modelling framework that is particularly well suited to the analysis of trade and regional
integration policy scenarios in an environment with heterogeneous firms and endogenous mark-ups. 【文件下载】
differences―and endogenous differences in the “toughness” of competition across markets―in
terms of the number and average productivity of competing firms. We analyse how these features vary
across markets of different size that are not perfectly integrated through trade; we then study the effects of
different trade liberalization policies. In our model, market size and trade affect the toughness of competition,
which then feeds back into the selection of heterogeneous producers and exporters in that market.
Aggregate productivity and average mark-ups thus respond to both the size of a market and the extent
of its integration through trade (larger, more integrated markets exhibit higher productivity and lower
mark-ups). Our model remains highly tractable, even when extended to a general framework with multiple
asymmetric countries integrated to different extents through asymmetric trade costs. We believe this
provides a useful modelling framework that is particularly well suited to the analysis of trade and regional
integration policy scenarios in an environment with heterogeneous firms and endogenous mark-ups.