For a small open economy with decreasing returns to scale within industries, increasing any factor supply may increase all sector outputs. A necessary and sufficient condition for these seemingly perverse Rybczynski adjustments may even be satisfied for stable equilibria

We study how financial frictions affect firm-level heterogeneity and trade. We build a model where productivity differences across monopolistically competitive firms are endogenous and depend on investment decisions at the entry stage. By increasing entry costs, financial frictions lower the...