HETEROGENEOUS-FIRM TRADE THEORIES
HETEROGENEOUS-FIRM TRADE THEORIES

Summary/Abstract: Both old and new trade theory typically assume a representative firm, at least within each industry. This assumption facilitates the general equilibrium analysis that is core to international trade, but it is inconsistent with the substantial variation in productivity, capital intensity and skill intensity observed across firms within narrowly defined industries. Of course, the mere existence of heterogeneity is not necessarily a problem for theories of international trade. The assumption of a representative firm could be a convenient, if not perfectly realistic, simplification. However, as we will show, the interaction of firm characteristics and the export orientation of the firm introduce a channel for international trade to influence aggregate productivity.

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