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Wiley InterScience | |||
  Review of Economic StudiesVolume 74 Issue 1, Pages 31 - 66 Published Online: 3 Jan 2007 © 2010 The Review of Economic Studies Limited
Abstract | References | Full Text: HTML, PDF (Size: 494K) | Related Articles | Citation Tracking  Comparative Advantage and Heterogeneous Firms Copyright 2007 The Review of Economic Studies Limited ABSTRACTThis paper examines how country, industry, and firm characteristics interact in general equilibrium to determine nations' responses to trade liberalization. When firms possess heterogeneous productivity, countries differ in relative factor abundance, and industries vary in factor intensity, falling trade costs induce reallocations of resources both within and across industries and countries. These reallocations generate substantial job turnover in all sectors, spur relatively more creative destruction in comparative advantage industries than in comparative disadvantage industries, and magnify ex ante comparative advantage to create additional welfare gains from trade. The improvements in aggregate productivity as countries liberalize dampen and can even reverse the real-wage losses of scarce factors. First version received December 2002; final version accepted February 2006 (Eds.) | 
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