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This paper presents a model of international trade that features heterogeneous firms, relative endowment differences across countries, and consumer taste for variety. The paper demonstrates that firm reactions to trade liberalization generate endogenous Ricardian productivity responses at the industry level that magnify countries' comparative advantage. Focusing on the wide range of firm-level reactions to falling trade costs, the model also shows that, as trade costs fall, firms in comparative advantage industries are more likely to export, that relative firm size and the relative number of firms increases more in comparative advantage industries and that job turnover is higher in comparative advantage industries than in comparative disadvantage industries.
Authors
![Person graphic](/sites/default/files/styles/square_desktop/public/2022-06/IFS-person-graphic.png?itok=hWCtTSrz)
Stephen Redding
![Person graphic](/sites/default/files/styles/square_desktop/public/2022-06/IFS-person-graphic.png?itok=hWCtTSrz)
Dartmouth University
Andrew is the Jack Byrne Professor of International Economics at the Tuck School of Business at Dartmouth and an International fellow of IFS. His research interests include international trade and investment and he specializes in firm responses to globalization.
![Person graphic](/sites/default/files/styles/square_desktop/public/2022-06/IFS-person-graphic.png?itok=hWCtTSrz)
Yale University
Peter is an Associate Professor of Economics at the Yale School of Management and an International Fellow of IFS.
Working Paper details
- DOI
- 10.1920/wp.ifs.2004.0424
- Publisher
- IFS
Suggested citation
A, Bernard and S, Redding and P, Schott. (2004). Comparative advantage and heterogeneous firms. London: IFS. Available at: https://ifs.org.uk/publications/comparative-advantage-and-heterogeneous-firms (accessed: 30 June 2024).
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