If you need an accessible version of this item please contact JSTOR User Support

The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity

Marc J. Melitz
Econometrica
Vol. 71, No. 6 (Nov., 2003), pp. 1695-1725
Published by: Econometric Society
Stable URL: http://www.jstor.org/stable/1555536
Page Count: 31
  • Download PDF
  • Cite this Item

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If you need an accessible version of this item please contact JSTOR User Support
The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity
Preview not available

Abstract

This paper develops a dynamic industry model with heterogeneous firms to analyze the intra-industry effects of international trade. The model shows how the exposure to trade will induce only the more productive firms to enter the export market (while some less productive firms continue to produce only for the domestic market) and will simultaneously force the least productive firms to exit. It then shows how further increases in the industry's exposure to trade lead to additional inter-firm reallocations towards more productive firms. The paper also shows how the aggregate industry productivity growth generated by the reallocations contributes to a welfare gain, thus highlighting a benefit from trade that has not been examined theoretically before. The paper adapts Hopenhayn's (1992a) dynamic industry model to monopolistic competition in a general equilibrium setting. In so doing, the paper provides an extension of Krugman's (1980) trade model that incorporates firm level productivity differences. Firms with different productivity levels coexist in an industry because each firm faces initial uncertainty concerning its productivity before making an irreversible investment to enter the industry. Entry into the export market is also costly, but the firm's decision to export occurs after it gains knowledge of its productivity.

Page Thumbnails

  • Thumbnail: Page 
1695
    1695
  • Thumbnail: Page 
1696
    1696
  • Thumbnail: Page 
1697
    1697
  • Thumbnail: Page 
1698
    1698
  • Thumbnail: Page 
1699
    1699
  • Thumbnail: Page 
1700
    1700
  • Thumbnail: Page 
1701
    1701
  • Thumbnail: Page 
1702
    1702
  • Thumbnail: Page 
1703
    1703
  • Thumbnail: Page 
1704
    1704
  • Thumbnail: Page 
1705
    1705
  • Thumbnail: Page 
1706
    1706
  • Thumbnail: Page 
1707
    1707
  • Thumbnail: Page 
1708
    1708
  • Thumbnail: Page 
1709
    1709
  • Thumbnail: Page 
1710
    1710
  • Thumbnail: Page 
1711
    1711
  • Thumbnail: Page 
1712
    1712
  • Thumbnail: Page 
1713
    1713
  • Thumbnail: Page 
1714
    1714
  • Thumbnail: Page 
1715
    1715
  • Thumbnail: Page 
1716
    1716
  • Thumbnail: Page 
1717
    1717
  • Thumbnail: Page 
1718
    1718
  • Thumbnail: Page 
1719
    1719
  • Thumbnail: Page 
1720
    1720
  • Thumbnail: Page 
1721
    1721
  • Thumbnail: Page 
1722
    1722
  • Thumbnail: Page 
1723
    1723
  • Thumbnail: Page 
1724
    1724
  • Thumbnail: Page 
1725
    1725