This volume was prepared by Benedikt Heid while he was working at the ifo Institute and the University of Bayreuth. It was completed in December 2013 and accepted as a doctoral thesis by the Department of Economics at the Ludwig-Maximilians-Universität München. It includes six self-contained...

This volume was prepared by Benedikt Heid while he was working at the ifo Institute and the University of Bayreuth. It was completed in December 2013 and accepted as a doctoral thesis by the Department of Economics at the Ludwig-Maximilians-Universität München. It includes six self-contained...

I discuss the need for trade models to incorporate endogenous trade imbalances both to more adequately capture the reality of a global economy with large imbalances and pressures from the financial crisis for countries to reduce imbalances. Conventional general equilibrium trade models...

Nominal exchange rates strongly co-move. However, little is known about the economic source of common variation. This paper examines how international trade links nominal exchange rates. First, I document that two countries that trade more intensively with each other have more correlated...

With strategic interactions and endogenous entry in a market, opening up to trade creates gains under very general conditions. Under Dixit-Stiglitz preferences and Cournot (or Bertrand) competition, an expansion of the market size induces exit of domestic firms, lower prices and larger...

What insights can be gained from bringing the theory of the firm to the global economy? I discuss several new features of the world economy that can be explained by incorporating the theory of the firm into the theory of international trade. Among the new features I discuss are the move to...

We present a general equilibrium model of monopolistic competition with variable demand elasticities and investigate the impact of free trade on welfare and efficiency. First, contrary to the constant elasticity case, in which all gains from trade are due to increasing product diversity, our...

We show that, even with flexible domestic wages, international outsourcing may worsen the welfare of the home country and reduce the profits of all firms. If wages are rigid, outsourcing is welfare-improving if and only if the sum of the quot;trade creationquot; effect and the quot;exploitation...

This paper builds a model that examines firm heterogeneity across two dimensions: productivity and quality. We show that when firms are able to choose their input quality and there exists a negative relationship between a firm's product quality and their marginal cost, this can lead to a...