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Firm heterogeneity, comparative advantage and the transfer problem

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  • Trionfetti, Federico

Abstract

This paper studies the transfer problem in a model featuring comparative advantage, monopolistic competition, trade costs, and firm heterogeneity in factor intensity. The results are very different from those of the previous literature. First, a transfer creates a secondary burden in situations where the neoclassical version of the Heckscher–Ohlin model would not. Second, a transfer affects wage inequality. Third, a transfer is not neutral to world welfare. Fourth, floating exchange rates do not substitute for deflation. Fifth, a simulation exercise shows that the quantitative effects of trade imbalances are comparable in magnitude to those arising from major trade agreements.

Suggested Citation

  • Trionfetti, Federico, 2018. "Firm heterogeneity, comparative advantage and the transfer problem," European Economic Review, Elsevier, vol. 108(C), pages 246-258.
    • Handle: RePEc:eee:eecrev:v:108:y:2018:i:c:p:246-258
    DOI: 10.1016/j.euroecorev.2018.07.007
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    Cited by:

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    2. Picard, Pierre M. & Worrall, Tim, 2020. "Currency areas and voluntary transfers," Journal of International Economics, Elsevier, vol. 127(C).

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    More about this item

    Keywords

    Productivity effects of transfers; Welfare effects of transfers;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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