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

Thia, Jang Ping (2008) The impact of trade on aggregate productivity and welfare with heterogeneous firms and business cycle uncertainty. CEP Discussion Paper (883). London School of Economics and Political Science. Centre for Economic Performance, London, UK. ISBN 9780853282907

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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 risk-averse consumers by reducing aggregate price fluctuations.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk/
Additional Information:	© 2008 The author
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HN Social history and conditions. Social problems. Social reform H Social Sciences > HD Industries. Land use. Labor
JEL classification:	F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
Date Deposited:	02 Jul 2010 15:40
Last Modified:	13 Sep 2024 20:08
URI:	http://eprints.lse.ac.uk/id/eprint/28500

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