We model demand for quality differentiated goods to derive a relationship between trade costs and the quality composition of trade. Detailed data on traded goods' prices, quantities and shipping costs for many importers and exporters are used to test these predictions. These data provide a...

This paper presents a model of international trade that features heterogeneous firms, relative endowment differences across countries, and consumer taste for variety. The paper demonstrates that firm reactions to trade liberalization generate endogenous Ricardian productivity responses at the...

Since the seminal work of Krugman (1979), product variety has played a central role in models of trade and growth. In spite of the general use of love-of-variety models, there has been no systematic study of how the import of new varieties has contributed to national welfare gains in the United...

We introduce firm and worker heterogeneity into a model of innovation-driven endogenous growth. Individuals who differ in ability sort into either a research sector or a manufacturing sector that produces differentiated goods. Each research project generates a new variety of the differentiated...

This paper 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...

When trade involves differentiated products, preferential ties to a group settled abroad facilitate an exporter's entry into the foreign market by providing information and access to distribution channels. This contrasts with the difficulties experienced by an unattached producer unfamiliar with...

We derive a small open economy (SOE) as the limit of an economy as the number or size of its trading partners goes to infinity and trade costs also go to infinity. We obtain this limit in the Armington, Eaton-Kortum, Krugman, and Melitz models. In all cases, the trade of the SOE with the foreign...

Applied general equilibrium (AGE) models, which feature multiple countries, multiple industries, and input-output linkages across industries, have been the dominant tool for evaluating the impact of trade reforms since the 1980s. We review how these models are used to perform policy analysis and...

This paper analyzes the welfare implications of international spillovers related to productivity gains, changes in market size, or government spending. We introduce trade costs and endogenous varieties in a two-country general-equilibrium model with monopolistic competition, drawing a...

We present a North South model of international trade in which differentiated products are developed in the North. Sectors are populated by final-good producers who differ in productivity levels. Based on productivity and sectoral characteristics, firms decide whether to integrate into the...