Chapter 1

Heterogeneous Firms and Trade*

Marc J. Melitza, b, c and Stephen J. Reddingb, c, d,    aHarvard University, Cambridge, MA, USA, bNational Bureau of Economic Research, Cambridge, MA, USA, cCentre for Economic Policy Research, London, UK, dPrinceton University, Princeton, NJ, USA


This chapter reviews the new approach to international trade based on firm heterogeneity in differentiated product markets. This approach explains a variety of features exhibited in disaggregated trade data, including the higher productivity of exporters relative to non-exporters, within-industry reallocations of resources following trade liberalization, and patterns of trade participation across firms and destination markets. Accounting for these ...

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