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...

We carry out an indirect inference test of two versions of a computable general equilibrium (CGE) model of world trade. One of these, the ‘classical’ model,is well-known as the Heckscher-Ohlin-Samuelson model of world trade, in which countries trade homogeneous products in world markets and...

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...

Firms play a critical role in the global economy. In this paper, we survey the behavior of firms in the international economy, both in theory and in the data. We first summarize the key empirical facts that motivate the study of firms in trade. Then, we detail recent theoretical developments on...

This study estimates the effect of trade facilitation measures implementation on trade costs in Asia and the Pacific using data from the United Nations Global Survey on Trade Facilitation and Paperless Trade Implementation. Impact of different sets of measures are considered, from a basic set of...

This paper investigates the elusive role of productivity heterogeneity in new trade models in the trade and environment nexus. We contrast the Eaton-Kortum and the Melitz models with firm heterogeneity to the Armington and Krugman models without heterogeneity. We show that if firms have a...

This paper investigates the elusive role of productivity heterogeneity in new trade models in the trade and environment nexus. We contrast the Eaton-Kortum and the Melitz models with firm heterogeneity to the Armington and Krugman models without heterogeneity. We show that if firms have a...

This paper aims at shedding some light on the interactions between international trade and firms' heterogeneity, by proposing a tractable model consistent with the stylised facts unveiled by the recent empirical literature. The model describes, in a general equilibrium framework, two economies...

Although economists have long been aware of Jensen's inequality, many econometric applications have neglected an important implication of it: estimating economic relationships in logarithms can lead to significant biases in the presence of heteroskedasticity. This paper explains why this problem...