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This paper studies household inequality and product market power in dynamic, general equilibrium. In our model, households' price elasticities of demand endogenously vary with wealth. Heterogeneous firms set their price as oligopolistic competitors given the endogenous distribution of demand. A firm's market power varies with the distribution of demand as households with different elasticities sort into high- and low-price varieties. Under standard preferences, larger firms' products are more appealing, sell at higher prices, to more households, and a relatively richer customer base, face less elastic demand, and set higher markups. Quantitatively (a) our model rationalizes a wide set of recent empirical studies in the cross-section of households and firms, (b) we find household heterogeneity to be a dominant source of markup variation across firms, and (c) a one-time fiscal transfer of one percent of GDP to households leads to a 0.3 percentage point increase in the aggregate markup. [ABSTRACT FROM AUTHOR]

Against the backdrop of the global COVID-19 pandemic and the deepening structural changes in the Chinese economy, this study presents a four-sector dual Dynamic Stochastic General Equilibrium (DSGE) model that incorporates households, heterogeneous firms, capitalists, and the government, taking into account the current domestic "dual economic structure." The model is used to simulate and analyze the impacts of fiscal policies and technological progress on diverse economic entities during the pandemic. The study reveals several key findings: (1) the pandemic outbreak has a significant short-term impact on the economy, disproportionately affecting small and microenterprises but with higher natural recovery rates compared with large and medium-sized enterprises; (2) unbiased fiscal policies have positive effects on output and capital, with larger output recovery effects observed for large and medium-sized enterprises, while capital recovery effects are less favorable; (3) technological progress contributes to rapid and stable economic growth, yielding overall benefits for large and medium-sized enterprises, but leading to significant crowding-out effects on small and microenterprises; and (4) solely increasing tax support for small and microenterprises, assuming constant tax revenue sources, does not enhance the overall resilience of the economy. These research findings provide policymakers with a dynamic microeconomic foundation within a macroeconomic framework, thereby enhancing the efficacy and precision of policies. [ABSTRACT FROM AUTHOR]

Clusters in the developing world do, to a large extent, attract low‐educated individuals, and these clusters are in some cases, characterized by urbanization without industrialization. This contrasts starkly to clusters in advanced economies that attract high‐skilled individuals and entrepreneurs. In this paper, we develop a model of agglomeration and spatial sorting that is consistent with these two types of different agglomeration processes in developed and developing countries. We show that a poor country that has an agglomeration with low skilled individuals, may get stuck in this equilibrium, but that free mobility of human capital from the outset nevertheless is superior from the perspective of total social welfare. [ABSTRACT FROM AUTHOR]

The literature investigates trade-environment relationship at the firm level, but does not focus on the environmental effect of trade policy uncertainty. In the context of de-globalization and Sino-US trade friction, trade policy uncertainty significantly increases. How does trade policy uncertainty affect firms' pollution emissions? In this study, we incorporate energy, pollution, and trade policy uncertainty into Melitz's (2003) framework and construct a theoretical model to reveal the relationship between trade policy uncertainty and pollution emissions. Then, we employ the event that the USA granted permanent normal trade relationship to China as a quasi natural experiment. We use difference-in-difference-in-difference model and the data of Chinese manufacturing firms for empirical analysis. Our results indicate that the decrease in trade policy uncertainty reduces emission intensity of exporting firms, but has no significant impact on emission levels. Given that these firms do not aggravate emission levels under the condition of expanding output scale, we conclude that the decrease in trade policy uncertainty can improve environmental performance. Mechanism analysis shows an interesting finding that the decrease in trade policy uncertainty reduces emission intensity mainly by improving energy efficiency rather than improving abatement technology and optimizing energy structure. In addition, pollution reductions mainly occur in pollution-intensive and capital-intensive industries as well as coastal regions. Altogether, this study contributes to the literature on trade-environment relationship and trade policy uncertainty. [ABSTRACT FROM AUTHOR]

Do trading activities matter for a firm's profitability? This study uses administrative data to examine the relationship between trade activities and profitability for Taiwanese manufacturing firms from 2006 to 2016. Our result shows that trading firms (two-way trade, exporter only, and importer only) have higher profitability than local firms, which do not engage in trade. Moreover, our findings indicate that firms with diversified products and diverse countries as trading partners can increase firm profitability have profit advantages. In addition, we find that country diversification has a stronger effect on profitability than product diversification. [ABSTRACT FROM AUTHOR]

This paper explores how the international exposure of companies influenced their strategies in responding to the COVID-19 crisis, and the extent to which they were affected. Our conceptual framework formulates two hypotheses that can be empirically tested. First, we posit that international companies, due to their connections with domestic and foreign markets, are more vulnerable to the crisis, being affected through both demand and supply channels. Second, despite their heightened exposure, we anticipate that international companies will exhibit greater resilience during the crisis compared to their domestic counterparts. This resilience can be attributed to their enhanced global connectivity and productivity. The empirical analysis, based on a large firm-level survey undertaken in 2020 in 133 countries, documents how different types of firms were affected by COVID-19 crisis and how they reacted to the disruptions, providing empirical support for both hypotheses. [ABSTRACT FROM AUTHOR]

We examine two key channels through which commodity price super-cycles affect the economy: a wealth channel, through which higher commodity prices increase domestic demand, and a cost channel, through which they induce wage increases. By exploiting regional variation in exposure to commodity price shocks and administrative firm-level data from Brazil, we empirically disentangle these transmission channels. We introduce a dynamic model with heterogeneous firms and workers to further quantify the mechanisms and evaluate welfare. A counterfactual economy in which commodity booms are purely endowment shocks experiences only 30% of the intersectoral labour reallocation between tradables and nontradables, and 40% of the within-tradable labour reallocation between domestic and exported production. Finally, the consumption-equivalent welfare gain of a commodity super-cycle is twice as large in the counterfactual economy. [ABSTRACT FROM AUTHOR]

I analyze the relationship between international trade and welfare using a theoretical model of heterogeneous firms with a labor market segregated between informal and formal firms. The segregation in this case is a result of the introduction in the market of a regulatory threshold, according to which firms having less than a certain quantity of workers are defined as informal, otherwise they are formal and should pay additional fixed and marginal labor costs. This threshold creates a situation where it is endogenously more profitable for the most productive informal firms to scale back production to avoid formal labor costs. The numerical solution of the model shows that, after trade openness, a share of the most productive informal firms become less productive informal, and that the less productive formal firms become most productive informal. The welfare in the economy decreases because of the shrinking of firms, the higher prices, and the reduction of available varieties. Likewise, the comparative static exercise yields evidence that a decrease in the regulatory threshold forces informal firms to become formal; therefore, under full employment conditions, such a policy increases all average wages and raises welfare. [ABSTRACT FROM AUTHOR]

Chinese firms faced an all‐around trade liberalization process during the early 2000s: lower barriers from other countries on Chinese goods, and lower Chinese barriers on other countries' goods and inputs. This paper disentangles the effects of each type of trade liberalization on Chinese firm‐level employment. We find that reductions in Chinese and foreign final‐good tariffs are associated with job destruction in low and mid‐low productivity firms and job creation in high‐productivity firms. Chinese final‐good trade liberalization produces the largest firm‐level employment responses, whereas the employment effects of Chinese input‐trade liberalization are limited to job destruction in the least productive firms. [ABSTRACT FROM AUTHOR]

Charactering Cournot equilibria in settings with asymmetric firms is a challenging problem. In their technical note "Multimarket Cournot Equilibria with Heterogeneous Resource-Constrained Firms," R. Caldentey and M. Haugh consider competition in a multimarket setting where firms are subject to varying budget or capacity constraints. They explicitly characterize the unique equilibrium in this environment by introducing the concepts of augmented and cutoff budgets for firms and markets. In particular, they show that a firm operates in a particular market if only if its augmented budget surpasses the market's cutoff budget. They also investigate how the equilibrium properties change as the number of firms N varies while maintaining a fixed aggregate budget. They show via a numerical study that increasing N leads to a higher total output across all markets but that this monotonicity need not hold individual at the level of an individual market level. They also show that, although the firms' cumulative payoff decreases in N, the consumer surplus and social surplus increase in N. We study Cournot competition among firms in a multimarket framework where each of the firms face different budget/capacity constraints. We assume independent linear inverse demand functions for each market and completely characterize the resulting unique equilibrium. Specifically, we introduce the notions of augmented and cutoff budgets for firms and markets, respectively. We show, for example, that firm i operates in market j if and only if firm i's augmented budget is greater than market j's cutoff budget. We also study the properties of the equilibrium as a function of the number of firms N while keeping the aggregate budget fixed. In a numerical study, we show that increasing N increases the total output across all markets although this monotonicity can fail to hold at the individual market level. Similarly, we show that that, although the firms' cumulative payoff decreases in N, the consumer surplus and social surplus increase in N. Funding: R. Caldentey thanks the University of Chicago Booth School of Business for financial support. [ABSTRACT FROM AUTHOR]

This study attempts to analyse the impact of leverage and corporate governance on export intensity of manufacturing firms quoted on Pakistan stock exchange for period 2013–2019. The results of a two-step system GMM method show that leverage has a negative relationship to export intensity. We find evidence that a firm's age negatively impacts the export sales to total sales ratio, while profitability has a positive connection with it. Finally, we note that board size exhibits a negative relationship with export intensity. These findings suggest important policy implications for export promotion, specifically for a small-open economy. [ABSTRACT FROM AUTHOR]

This paper adds to the new literature on firms' direct sourcing of imported intermediate inputs. We address key gaps in the literature by examining the influence of source country characteristics on import prices, the import behaviour of Indian firms and empirical strategies to address source country selection bias, while using disaggregated import data at the firm, product and source country level. We offer a theoretical contribution which suggests that source characteristics affect firms' willingness to pay for imported inputs, particularly high‐quality differentiated inputs. Our unique and detailed data set of Indian manufacturers' imported inputs allows us to control for all firm and product characteristics to eliminate missing‐variable bias with fixed effects, and to correct for possible selection bias in firms' source country choices. Results indicate that source country characteristics matter. Import prices rise for products sourced from high‐income per capita countries, rise with distance and fall with GDP and remoteness (the latter a new finding suggested by our theory). High productivity firms that also export appear particularly willing to pay high prices for high‐quality inputs from specific source countries. Our results suggest that, apart from other consequences, restrictions on imported inputs harm firms' ability to upgrade product quality. [ABSTRACT FROM AUTHOR]

In China, state-owned firms exhibit easier access to external credit but have lower productivity than private firms. We construct a dynamic general equilibrium model incorporating heterogeneous financial frictions to investigate their impact on credit resource misallocation and macroeconomic fluctuations in the Chinese economy. A calibration of our model suggests that heterogeneity in financial frictions can reduce macroeconomic volatility. The mechanism is that heterogeneity in financial frictions induces the procyclicality of credit resource misallocation within entrepreneurs, thus the procyclicality of productivity loss. The stabilization effect depends on the relative magnitude of the impact of the shock on credit resource misallocation within entrepreneurs compared to its impact on the output. In addition, we show that the cost of the stabilization effect of heterogeneity in financial frictions is that it reduces the economy's aggregate TFP and output at the steady state. Our results imply that neglecting heterogeneity may overestimate the impact of financial frictions on economic volatility in previous studies. [ABSTRACT FROM AUTHOR]

The environmental impact of exporting is a topic of significant concern to both scholars and policymakers. Analyzing how exporting influences firms' environmental performance concerning the product level is vital for better understanding its implications. Drawing on the data obtained from Chinese industrial firms, this study employs the PSM-DID (Propensity Score Matching-Difference in differences) model to establish a causal relationship between exporting intermediate goods or final goods and firms' emissions. The findings indicate that, on the one hand, exporting intermediate goods leads to a rise in firms' production scale and total factor productivity, ultimately significantly increasing total pollution emissions and reducing pollution emission intensity. On the other hand, exporting final goods decreases total pollution emissions and emission intensity through the technical effect. In general, this study provides important micro-level evidence of how exports affect pollution emissions at the product level in China. This evidence is valuable for policymakers in shaping environmental regulations and export policies. [ABSTRACT FROM AUTHOR]

Recent heterogeneous firm literature has revised the basic assumptions of constant marginal costs; markets may thus be complements or substitutes. Using Chinese firm‐level data for 1998–2007, our study utilises the 2004 export tax rebate (ETR) cut as a quasi‐natural experiment to demonstrate how the domestic market may be a fall back for exporters when they encounter exogenous negative export shocks, leading to market‐switching behaviour and higher domestic sales. The market‐switching behaviour significantly intensifies the competition in the domestic market in the affected industries. This crowds out sales of non‐exporters and drives up the probability of market exit of non‐exporters. Consequentially, non‐exporters in industries affected by the negative export shock may enjoy a significantly larger productivity gain compared with their counterparts in other industries, as well as exporters in the same industries. Thus, the negative shocks to the export market result in an indirect pro‐competitive productivity gain for non‐exporters. [ABSTRACT FROM AUTHOR]

The relationship between international investment and the environment is always concerned around the world, but the literature mainly focuses on the impact of foreign direct investment (FDI) (especially from developed countries to developing countries). Currently, many developing countries have regarded outward foreign direct investment (OFDI) as a critical task of economic development and encourage firms to 'Going global'. After OFDI, how do firms' pollution emissions change? In this study, we employ the data of Chinese industrial firms to empirically answer this question. In particular, we combine inverse probability weighted matching with a difference‐in‐difference approach to identify the causal effect of OFDI on firm‐level pollution emissions. Our result indicates that OFDI leads to the reduction in both emission intensity and emission levels. This pollution reduction is driven by improving abatement technology and decreasing energy intensity. It potentially implies that OFDI reduces pollution emissions mainly through the 'reverse technology spillover' effect rather than 'pollution transfer' effect. In addition, pollution reductions caused by OFDI are prominent for local production OFDI and resource exploitation OFDI, OFDI to high‐income countries as well as capital‐intensive industries. Overall, this study not only provides an initial evidence for the relationship between OFDI and the environment at the firm level but also provides enlightenments for international investment and sustainable development. [ABSTRACT FROM AUTHOR]

R&D investment reduces current profits, so short‐term pressure to hit profit targets may distort R&D. In the data, firms just meeting Wall Street forecasts have lower R&D growth and subsequent innovation, while managers just missing receive lower pay. But short‐termist distortions might not quantitatively matter if aggregation or equilibrium dampen their impact. So I build and estimate a quantitative endogenous growth model in which short‐termism arises naturally as discipline on conflicted managers and boosts firm value by about 1%. But short‐termism reduces R&D, and the social return to R&D is higher than the private return due to standard channels including knowledge spillovers and imperfect competition. So at the macro level, short‐termist distortions slow growth by 5 basis points yearly and lower social welfare by about 1%. [ABSTRACT FROM AUTHOR]

The effect of total factor productivity (TFP) on exports particularly interests policy-makers and economists, but empirical evidence is ambiguous. This paper uses the 6-wave panel data in 2010-2015 to investigate the impact of TFP on export transitions at the firm level. We distinguish different types of export transitions, namely start, stop, continuity, fluctuation, and striving, and different phases of export transition. The Generalised Method of Moments (GMM) estimation is applied to control for endogeneity and unobserved time-invariant specific components. The results reveal that (i) the effect of productivity on export (the self-selection hypothesis) is heterogeneous, depending on specific sectors and types and phases of export transitions; (ii) productivity growth does not necessarily result in positive effects on and lead to participation in types and phases of export transitions. Our results also reveal strong evidence of favourable sunk cost in long-run export striving in nearly all sectors, and unlike previous studies, empirical results show a negative effect of sunk cost in some manufacturing sectors. Policy-makers should create dynamic comparative advantages and favourable environments for new exporters, focus the relevant policies on productivity stimulus, and strengthen the likelihood of survival for the domestic firms in the competitive global markets. [ABSTRACT FROM AUTHOR]

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This paper compares the Allowance for Corporate Equity (ACE) tax and the Comprehensive Business Income Tax (CBIT) in a general equilibrium model with firms that face entry costs, fixed production costs and increasing marginal costs. We add the empirical regularity of heterogeneity (productivity and size) among firms and thus capture selection effects based on firm profitability. Corporate taxation affects selection and consequently the industry structure. An ACE tax distorts the industry structure by permitting the survival of less productive firms. In contrast, a CBIT is neutral on selection. Aggregate real income increases for an equal yield switch from ACE to CBIT. Yet, this switch hurts small low-productivity firms, while it boosts the earnings of large high-productivity firms. [ABSTRACT FROM AUTHOR]

In this paper, we explore two heterogeneous triopoly games where the market demand function is isoelastic. The local stability and the bifurcations of these games are systematically analyzed using a symbolic approach, proposed by the author, of counting real solutions of a parametric system. The novelty of our study is twofold. On one hand, we introduce into the study of oligopoly games several methods of symbolic computation, which can establish analytical results and are different from the existing methods in the literature based on numerical simulations. In particular, we obtain the analytical conditions of the local stability and prove the existence of double routes to chaos through the period-doubling bifurcation and the Neimark-Sacker bifurcation. On the other hand, in the special case of the involved firms having identical marginal costs, we acquire the analytical conditions of the local stability for the two models. By further analyzing these conditions, it seems that the presence of the local monopolistic approximation (LMA) mechanism has a stabilizing effect for heterogeneous triopoly games with the isoelastic demand.

This paper estimates the relation between technical regulations and firms' export dynamics using country-sector indicators from two firm-level datasets—the novel UN ITC NTM Business Surveys and the World Bank Exporter Dynamics Database—for 18 developing countries over the 2010–2014 period. The results from the analysis indicate that export markets where exporters perceive technical regulations as more burdensome are characterized by a lower number of exporters, a lower value of exports, and a higher concentration rate. These results are in line with the prediction of the heterogeneous firms' trade theory (Melitz, 2003): additional trade costs are expected to push some firms out of exporting, therefore reducing the total number of exporters and increasing concentration. Also, technical regulations hit small firms' exports twice as hard as they hit large firms, confirming that smaller firms react more strongly to changes in trade costs. [ABSTRACT FROM AUTHOR]

This study investigates the effects of an oil boom on manufacturing plants performance. First, we derive several predictions using a model of heterogeneous firms. Second, we test these predictions on a plant level dataset using the Canadian Annual Survey of Manufacturers for 2000-2010. We exploit the time variation of the booming natural resource sector revenue in an oil-producing area in combination with the location of manufacturing plants to create an exogenous treatment variable. The outcome variables include plant level wages, employment, sales, and exports. We find that initial plant level productivity provides an important differentiation in average plants effects. Plants that are more productive become more likely to export in response to the oil boom, while less productive plants become less likely to export. Exporting firms become more likely to increase wages relative to non-exporting firms, but less likely to increase employment. While there is a great variety in the effect by sector, we do not observe that industry linkages with the resource industry drive plant performance. [ABSTRACT FROM AUTHOR]

Existing literature supports that exporting firms have better environmental performance. An interesting question thereby arises: the more exports, the better? To answer this question, we develop a method to decompose firm-level pollution emissions, and empirically investigate the relationship between export intensity and environmental performance using Chinese firm-level data. Our results indicate that the answer to this question is "No". First, OLS estimation shows that firms with higher export intensity have less pollution emissions, mainly because of smaller output scale and lower energy intensity (energy-to-labor ratio) rather than more advanced technologies. Second, we focus on PSM-DID estimation and find that only the increase in export intensity by a smaller extent is conducive to improving firms' environmental performance. This effect is driven by decreasing energy intensity and thereby improving energy efficiency. This finding implies that firms should focus on both domestic and foreign markets, when they improve export participation. Third, those relationships are found to be heterogeneous across the firms in terms of different pollutants, ownership types, industrial sectors and provinces. In particular, mainly for private and foreign-funded firms, technology-intensive sectors and coastal provinces, increasing export intensity can improve environmental performance. Our study provides an in-depth empirical evidence on the relationship between export intensity and environmental performance in China, and provides a new insight and a better understanding for exports and environment from a micro perspective. [ABSTRACT FROM AUTHOR]

This paper provides new evidence on the reorganization of global production exploiting a novel dataset of Italian multinational firms surveyed throughout 2020 and 2021 as well as consolidated data sources. We find that Covid-19 did not spur large waves of reshoring nor plant closures. Even though the pandemic caused severe losses to firms, including multinationals, most did not stop foreign production nor are willing to do so in the near future. Trade policy uncertainty, conversely, is more likely to induce reshoring and plant closures. This evidence is consistent with a simple multi-period model, illustrating how offshoring, on the one side, and reshoring, on the other side, are asymmetric in important ways. In the presence of sunk costs, reshoring requires sufficiently large and permanent shocks to demand, trade and foreign production costs to induce behavioral changes. Covid-19 was a major shock, but it was mostly perceived as temporary, while persistent trade policy uncertainty, especially if combined with other shocks, is more likely to induce firms to revise their internationalization strategies. [ABSTRACT FROM AUTHOR]

We investigate the effects of offshoring on job security using matched employer-employee data from Sweden. Between 1997 and 2011, the share of offshoring firms fell from around 25 to 22% while offshoring per worker within offshoring firms almost doubled. We use this variation to contribute to the literature by examining the effects of the neighboring firms' offshoring (external offshoring) on job separation in small and medium-sized enterprises (SMEs). Our results suggest that external offshoring has a significant impact on job security in SMEs that do not offshore themselves. In addition, having a university degree, being young, and being new to the job reduce the risk of a job exit due to increased external offshoring. This result is indicative of a Schumpeterian job-restructuring effect where old jobs are replaced by newer ones. Finally, the increased risk of a job exit in SMEs suggests a higher vulnerability of these firms to local shocks due to offshoring activities in larger neighboring firms. Plain English Summary: Offshoring leads to higher job exits in small and medium-sized enterprises (SMEs) that do not offshore themselves, as per new evidence from manufacturing firms in Sweden. This effect is highest for less educated and older workers. Manufacturers are ever more involved in fragmented supply chains where they supply intermediate inputs to one another. This suggests that any decision made by one manufacturer to offshore (replace a local supplier with a foreign one) may have negative effects on the workers of other firms. SMEs may be more vulnerable to offshoring because they tend to be more local in their activities, although they may not offshore themselves. This study uses a data set from Sweden to explore the effects of offshoring on the job security of workers in small and medium-size enterprises (SMEs). We find that offshoring activities within Sweden lead to higher job exits in SMEs that do not offshore themselves. This effect is highest for low skill (less educated) and older workers. Policy makers should be aware of the vulnerability of SMEs to offshoring activities of other often-larger firms through channels related to supply chains. [ABSTRACT FROM AUTHOR]

Under a wide range of model features, we show that in response to a reduction in global trade costs, the global welfare gains are largest in the Melitz model, followed by the Krugman model, and smallest in Armington. Labor‐leisure choice and intermediate goods are the most important features for differentiating results. We show that the optimal tariff is significantly lower in the monopolistic competition models, thereby moving policy away from protectionism. We are the first to consider multi‐sector comparative‐static welfare impacts of these market structures, while maintaining equal trade responses across the models consistent with a shared structural‐gravity elasticity. [ABSTRACT FROM AUTHOR]

The present study concerned about the issue of optimal environmental tax under the assumption of heterogeneous productivity of firms when foreign direct investment (FDI) is allowed. A Melitz model was developed to calculate the effect of environmental tax on FDI when two governments adopt either a cooperative or a competitive strategy. The results showed that the impacts of environmental policy on FDI is different when different strategies are adopted by the governments. These differences in both strategies heavily depend on price effects and profit effects. In conclusion, in order to decide the optimal environmental tax, it is important to consider marginal benefits and costs on environmental investments.

Rural urban migration is an important aspect towards the process of urbanization and development and therefore has been a topic of interest and debate for many economists for several decades. As a result, there exists a vast and diverse literature empirical and theoretical on the causes, consequences and therefore policy considerations and implications of rural urban migration. In this paper a few of the empirical observations are incorporated in a general equilibrium model based on Harris Todaro (1970) and Melitz (2003) to make it more realistically relevant. Later the effect a usual policy of rural wage subsidy is observed in the new model.

The present paper explores how foreign business conditions affect domestic income, welfare, and industry structure, i.e., the international spillovers from business conditions, in a two-country one-sector heterogeneous-firms trade model. Pro-competitive improvements in foreign business conditions (e.g., a larger market, higher productivity, lower export costs or lower entry costs) increase real income and thus welfare in both countries. The positive spillovers materialize in part through intra-industry reallocations similar to those released by trade liberalization. They include stronger selection into firm survival and a larger share of firms exporting, and, thus, a shift of activity towards more productive firms and a subsequent increase in aggregate productivity. The change in the share of domestic expenditure is shown to be a sufficient statistic for how changes in foreign business conditions affect domestic real income, welfare, and industry structure. Finally, the paper highlights that the sign of the spillover is highly dependent on whether the general equilibrium is restored through standard home market effects or through adjustment in the relative wage. [ABSTRACT FROM AUTHOR]

Increasing uncertainty has hindered the development of international trade in recent years. Participating in the global value chain (GVC) has become one way for Chinese export firms to deal with uncertainty and reduce external risks. Based on trade theory with heterogeneous firms, this study constructs a theoretical framework encompassing uncertainty and GVC participation. We find that uncertainty inhibits the export of firms, but GVC participation can alleviate the negative impact of uncertainty, which is verified through empirical analysis. Additionally, mechanism analysis reveals that GVC participation plays a moderating role through product diversity, market diversity, cost‐saving effects, and quality‐improving effects. This study demonstrates that in the absence of serious adverse events, GVC is highly efficient. Accordingly, China should actively participate in the governance of the COVID‐19 pandemic, reduce the external uncertainty faced by Chinese export firms, promote the return of an efficient GVC, and further ameliorate the negative impact of uncertainty. [ABSTRACT FROM AUTHOR]

Most studies on environmental policy and total factor productivity (TFP) growth under the heterogeneity framework tend to ignore the distance to the technical frontier, while research that investigates TFP growth based on technical distances does not tend to consider environmental policy. To fill this research gap, this study investigates the impact of environmental regulation on the total factor productivity of heterogeneous firms, based on technical distance. In addition to theoretical analysis, we apply a two-direction fixed effects model to test the impact using firm-level data selected from the CSMAR database and environmental regulation data of 287 Chinese cities between 2007 and 2015. We report two major findings from our analysis. First, environmental regulation increasingly enhances (or hinders) TFP growth, as firms get closer to (or further away from) the country-industry technology frontier, ceteris paribus. Second, grouped regression further highlights that environmental regulation affects TFP growth for heterogeneous firms. For proximal-type firms, environmental regulation promotes the growth of TFP through innovation and imitation mechanisms, while only the imitation mechanism works for middle-type firms. Neither mechanism, however, applies to distal-type firms, for whom environmental regulation hinders TFP growth. These conclusions provide a theoretical and practical basis for environmental policy, suggesting that the focus should be directed toward improving exit mechanisms for distal-type firms, creating a favorable market environment to accelerate the convergence of middle-type firms to the frontier, and encouraging proximal-type firms to innovate to catch up with or surpass the global frontier.

We explore monopolistic competition with asymmetric preferences over a variety of goods provided by heterogeneous firms, and compute equilibria (approximating Cournot and Bertrand equilibria when market shares are negligible) through average Morishima elasticities of substitution. Further results concerning pricing and entry emerge under homotheticity and when demands depend on a common aggregator, as with Generalized Additively Separable preferences. Under additivity we can determine which goods are going to be provided under free entry, as well as the selection effects associated with changes in market size, consumers' income, aggregate productivity, and preference parameters. [ABSTRACT FROM AUTHOR]

Convex vacancy creation costs shape firms' responses to trade liberalisation. They induce capacity constraints by increasing firms' costs of production. A profit maximising firm will therefore not fully meet the increased foreign demand, but serve only a few export markets. More productive firms will export to more countries and profit more from trade liberalisation. To get an effect of trade liberalisation on wage inequality, we need on‐the‐job search and convex vacancy creation costs because with linear costs trade liberalisation affects all wages in equal proportion. Furthermore, with convex vacancy creation costs, not all firms export to all foreign markets even if trade is fully liberalised. This implies that wage inequality under free trade is always higher than under autarky. [ABSTRACT FROM AUTHOR]

In this article, the authors describe an interactive classroom simulation that helps students learn some of the most important ideas from models of international trade with heterogeneous firms. Students make entry/exit decisions for individual firms with different marginal costs of production. The simulation consists of five rounds, beginning with autarky and progressively liberalizing trade. In each round, students interactively determine each firm's equilibrium entry/exit decision by responding in real time to how their individual firm's profit is affected by the decisions of all of the other firms. Empirical evidence from a pre–post assessment of students who participated in the simulation in the fall of 2019 demonstrates a significant increase in student understanding of international trade with heterogeneous firms after participating in the simulation. [ABSTRACT FROM AUTHOR]

The present study concerned about the issue of optimal environmental tax under the assumption of heterogeneous productivity of firms when foreign direct investment (FDI) is allowed. A Melitz model was developed to calculate the effect of environmental tax on FDI when two governments adopt either a cooperative or a competitive strategy. The results showed that the impacts of environmental policy on FDI is different when different strategies are adopted by the governments. These differences in both strategies heavily depend on price effects and profit effects. In conclusion, in order to decide the optimal environmental tax, it is important to consider marginal benefits and costs on environmental investments. [ABSTRACT FROM AUTHOR]

This paper develops a simple model of spatial sorting where the least productive entrepreneurs are drawn to the large core region. This is an unusual feature. The literature on spatial sorting typically shows how the most productive individuals and firms agglomerate to the core. However, our model is consistent with empirical evidence that reveals that large agglomerations also attract the low skilled. [ABSTRACT FROM AUTHOR]

Financial institutions are exempt from the value‐added tax (VAT) in most countries. We develop a general equilibrium model with endogenous firm entry and a banking sector to accommodate three key distortions related to exempt treatment: (i) self‐supply bias in the banking sector, (ii) under‐taxation of payment services, and (iii) input distortions in the business sector and tax cascading. We calibrate our model to the average of Germany, France, and the UK data. Our results show that repealing exempt treatment always increases tax revenues. However, welfare gains occur only at low VAT rates due to the hump‐shaped VAT Laffer curve. [ABSTRACT FROM AUTHOR]

Access to highly disaggregated trade data allows for a more nuanced investigation of different margins of trade, and the factors known to influence them. In this paper, the number of importers and shipments to each importer is investigated together with the more traditional margins. Potential explanatory factors of these trade margins are combined from three literature strands in addition to the standard gravity variables; firm productivity, per-unit shipment costs and country-specific trade costs. The empirical results show, not unexpectedly, that insights from all these different strands of literature influence trade margins significantly. In particular, the number of shipments per importer increases with distance, degree of remoteness and per-shipment cost, and the number of importers decreases with the distance, remoteness and per-unit shipping cost. This indicates that increased trade costs make exporters economize in existing networks. Finally, disaggregating the data into three main product categories using Rauch's classification, trade patterns are shown to vary by product group. [ABSTRACT FROM AUTHOR]

Changes in the costs of trading inputs or final goods affect establishment-level job flows. Using a longitudinal database containing the universe of manufacturing establishments in California from 1992 to 2004, we find that a decline in input or final-good trade costs is associated with job destruction in the least productive establishments, job creation in the most productive establishments, and an increase in the death likelihood of the least productive establishments. The evidence is consistent with predictions of models of trade with heterogeneous firms. Additionally, the evidence shows that the effects of input trade costs on establishment-level job flows are larger than the effects of final-good trade costs. (JEL F14, F16)