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The impact of trade on aggregate productivity and welfare with heterogeneous firms and business cycle uncertainty

Thia, Jang Ping (2011) The impact of trade on aggregate productivity and welfare with heterogeneous firms and business cycle uncertainty. The Journal of International Trade and Economic Development, 20 (5). pp. 651-675. ISSN 0963-8199

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Abstract

This paper presents a model with monopolistic competition, productively heterogeneous firms, and business cycle aggregate shocks. With firm-specific productive heterogeneity, weaker firms quit when faced with a negative aggregate shock. Consequently, trade does not always increase firm-level aggregate productivity as negative shocks on the home market can be compensated for by positive shocks elsewhere. Weaker firms, which would otherwise quit in autarky, can continue to operate by exporting. Despite this, trade can still improve welfare for the risk-averse consumer by reducing aggregate price fluctuations.

Item Type: Article
Official URL: http://www.tandf.co.uk/journals/titles/09638199.as...
Additional Information: © 2011 Taylor & Francis
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HN Social history and conditions. Social problems. Social reform
Journal of Economic Literature Classification System: F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 03 Oct 2011 14:53
URL: http://eprints.lse.ac.uk/38582/

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