HOME » wiiw Working Papers » Reallocation Gains in a Specific Factors Model ...
We study firm heterogeneity in a specific factors model to address the effect of factor mobility on reallocation gains from trade. A model is proposed with Melitz-type firm heterogeneity with two sectors, two countries and two fixed factors and one factor mobile across sectors. Equilibrium in each sector can be concisely represented by a demand and supply equation and an FE and ZCP condition. Varying the substitution elasticity between the fixed and mobile factor, we show that the welfare gains from trade liberalization are larger in countries with lower substitution elasticity. Furthermore, it is shown that the immobile production factor in the comparative disadvantage sector can still gain from trade liberalization due to the reallocation effect.
wiiw Working Papers
(free PDF download)
 |
Reallocation Gains in a Specific Factors Model with Firm Heterogeneity (by Eddy Bekkers and Robert Stehrer) wiiw Working Paper No. 77, December 2011 23 pages including 7 Tables FREE DOWNLOAD
Keywords: firm heterogeneity, specific factors, reallocation gains from trade JEL classification: F12 Countries covered: non specific Topics: International Trade, Competitiveness and FDI |
Add to cartWe study firm heterogeneity in a specific factors model to address the effect of factor mobility on reallocation gains from trade. A model is proposed with Melitz-type firm heterogeneity with two sectors, two countries and two fixed factors and one factor mobile across sectors. Equilibrium in each sector can be concisely represented by a demand and supply equation and an FE and ZCP condition. Varying the substitution elasticity between the fixed and mobile factor, we show that the welfare gains from trade liberalization are larger in countries with lower substitution elasticity. Furthermore, it is shown that the immobile production factor in the comparative disadvantage sector can still gain from trade liberalization due to the reallocation effect.
Visitors who downloaded this publication/presentation also downloaded:
|
Trade-Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity (by Nick Bloom, Mirko Draca and John van Reenen) wiiw Global Economy Lecture 22 October 2012, 4 p.m., Oesterreichische Nationalbank, Vienna 9, Otto-Wagner-Platz 3, OeNB auditorium, ground floor DETAILS |
|
What went wrong in Slovenia and how to get out of the mess? (by Joze P. Damijan) wiiw Seminar Series 'EU in Crisis' 08 October 2012, 5 p.m., Venue: wiiw, 1060 Vienna, Rahlgasse 3 DETAILS |
|
The European Rim Countries - Challenges and Opportunities for EU Competitiveness (by Vasily Astrov, Peter Havlik, Mario Holzner, Gabor Hunya, Isilda Mara, Sandor Richter, Roman Stöllinger and Hermine Vidovic) wiiw Policy Note and Report No. 9, October 2012 49 pages including 3 Tables and 12 Figures DETAILS |
