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Trade and Industrial Policies with Heterogeneous Firms: The Role of Country Asymmetries
Author(s) -
Pflüger Michael,
Russek Stephan
Publication year - 2014
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12104
Subject(s) - autarky , economics , free trade , productivity , international economics , trade barrier , commercial policy , welfare , gains from trade , liberalization , international trade , industrial policy , market economy , macroeconomics
This paper explores the role of country asymmetries for trade and industrial policies with heterogeneous firms. The analysis delivers a number of novel results. First, trade policies, infrastructure policies and industrial policies which improve the business conditions in one country have negative productivity and welfare effects on the trading partner. Second, symmetric trade liberalization is immiserizing for a trading partner whose business conditions are inferior. Third, there are gains from trade even for a country whose monopolistically competitive sector with heterogeneous firms is wiped out by switching from autarky to trade.