Multi-Product Firms and Trade Liberalization

This paper develops a general equilibrium model of international trade that features selection across …rms, products and countries. Firms’export decisions depend on a combination of …rm “productivity”and …rm-product-country “consumer tastes”, both of which are stochastic and unknown prior to the payment of a sunk cost of entry. Higher-productivity …rms export a wider range of products to a larger set of countries than lower-productivity …rms. Trade liberalization induces endogenous reallocations of resources that foster productivity growth both within and across …rms. Empirically, we …nd key implications of the model to be consistent with U.S. trade

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