Tags: Roman Roads EssayLong Term Financing PaperGood Argument Essay Topics For College StudentsBusiness Development PlanningPaper Shredding TermsStatistics Research Papers
I prove that the extensive margin, the number of exporters, and intensive margin, the exports per firm, are affected by the elasticity of substitution in exact opposite directions.In sectors with a low elasticity of substitution, the extensive margin is highly sensitive to trade barriers, compared to the intensive margin, and the reverse holds true in sectors with a high elasticity.
In this chapter, I introduce firm heterogeneity in a simple model of international trade.
By considering only the intensive margin of trade, Krugman (1980) predicts that a higher elasticity of substitution between goods magnifies the impact of trade barriers on trade flows.
We would like to encourage you to tell us about your own ideas and fields of interest.
Topics in the areas of international, institutional and development economics are preferred.
The most productive foreign firms enter the domestic market. The least productive firms that are no more profitable are forced to stop production. This model also predicts that the price compression that accompanies trade opening may be dampened in the long run.
Not only do the most productive firms increase their size because they export, but the least productive firms stop producing altogether. As time goes by, firms start to exit because of age. It also predicts that inequalities should increase at the time when a country opens up to trade, and then gradually recede in the long run.
At the same time, the value of domestic assets owned by potential exporters increases. This dampens the negative competitiveness impact of a currency appreciation.
Under some circumstances, it may actually reverse it altogether and increase aggregate exports.(cont.) This model provides some argument for competitive revaluations.
Aggregate productivity increases in the long run, but it increases even more so in the short run.
When trade opens up, there are too many firms, inherited from the autarky era. The slower the exit of firms, the larger this overshooting phenomenon.