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- Title
Firm heterogeneity and Ricardian comparative advantage within and across sectors.
- Authors
Okubo, Toshihiro
- Abstract
This paper incorporates Melitz’s Econometrica (71:1695–1725, 2003) heterogeneous-firm trade model in the Ricardian model of comparative advantage with a continuum of sectors introduced by Dornbusch et al. (Am Econ Rev 67(5), 823–839, 1977). In particular, we characterise the equilibrium outcomes when neither sectors nor countries are symmetric. We find that trade patterns can follow Ricardian comparative advantage, while wage rates are proportional to market size due to a home market effect. Interestingly, trade liberalisation hurts the large country but benefits the small one by reducing the number of sectors with two-way trade and expanding those with specialised (one-way) trade.
- Subjects
ECONOMIC models; COMPARATIVE advantage (International trade); RICARDO, David, 1772-1823; FREE trade; WAGES; ECONOMIC competition; RESEARCH &; development
- Publication
Economic Theory, 2009, Vol 38, Issue 3, p533
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s00199-007-0324-6