On the impact of trade on industrial structures:The role of entry cost heterogeneity

This paper investigates the impacts of progressive trade openness, technological externalities,and heterogeneity of individuals on the formation of entrepreneurship in a two-countryoccupation choice model. We show that trade opening gives rise to a non-monotonic processof international specialization, in which the share of entrepreneurial firms in the large (small)country first increases (decreases) and then decreases (increases), with the global economyexhibiting first de-industrialization and then re-industrialization. When countries have thesame size, we also show that strong technological externalities make the symmetricequilibrium unstable, generating equilibrium multiplicity, while sufficient heterogeneity ofindividuals leads to the stability and uniqueness of the symmetric equilibrium..... []