For a firm without a readily identifiable brand name, quality reputation may solely reflect the country of origin. In this paper we endogenize country-of-origin reputations and show that these selffulfilling reputations determine not only the average quality of a country’s exports but also the type of products in which a country specializes. Hence, the pattern of international trade can be dete...

This paper investigates the effect of Internet technology on how firms access export markets directly or via intermediaries. Empirical evidence suggests that technology diffusion is geographically localised, with knowledge spillovers from neighbouring adopters decaying quickly over short distances. To address the potential endogeneity of Internet adoption, I construct an instrument that capture...

It is often observed that in order to serve the domestic market, foreign firms not only export but also control domestic firms through foreign direct investment (FDI). This paper examines the effects of tariffs, production subsidies, and foreign ownership regulation on prices, outputs, profits, and welfare when both exports and FDI coexist. Cross-border ownership on the basis of both financial ...

Article history: Received 29 June 2013 Received in revised form 18 November 2013 Accepted 19 November 2013 Available online 12 December 2013 Constructing a duopoly model with non-constant marginal costs and a strict Pareto criterion, this paper examines welfare effects of world-price-fixing tariff reductions accompanied by adjustments of a domestic tax. If a destination-based consumption tax is...

This paper evaluates the research that has taken place on intra-industry trade (IIT) since the publication of Grubel and Lloyd’s pioneering volume on the subject in 1975. The evaluation of the development of the literature is organised around the themes of measurement, explanation and policy. The paper identifies significant progress on all these themes. We now have a robust theoretical framewo...

Case study evidence suggests that exporting firms learn from their clients. But econometric evidence, mostly using exporting and TFP growth, is mixed. We use a UK panel data set with firm-level information on exporting and productivity. Our innovation is that we also have direct data on the sources of learning (in this case about new technologies). Controlling for fixed effects we have two main...

Traditional computable general equilibrium (CGE) models based on the Armington assumption fail to capture the extensive margin of trade, and thereby underestimate the trade and welfare effects of trade opening. To address this problem, this paper introduces the Melitz (2003) theoretical framework with firm heterogeneity and fixed exporting costs into a global CGE model. Some illustrative simula...

This paper provides empirical evidence for the interaction between firm-level total factor productivity and trade liberalization as key determinants of firm-level job destruction caused by trade. We also test some key theoretical predictions from Melitz (2003), whose model is used to derive an explicit equation relating firm productivity and trade-induced labor layoff when a country liberalizes...

This paper introduces a framework to study the links between the supply of liquid assets for the financial market and the international allocation of economic activity. Private assets’ liquidity properties—their usefulness as collateral or media of exchange in financial transactions— affect assets’ values and interest rates, with consequences on firm entry, production, aggregate productivity, a...

Recent models of international trade have identified product quality as an important determinant of bilateral trade flows. Yet relatively little is understood about the relationship between the characteristics of the export market and the quality of products. In this paper we examine this link using Chinese data. We find evidence that product unit values vary with standard gravity variables in ...