The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

International Trade and Heterogeneous Firms

  • Marc J. Melitz
Reference work entry


Empirical studies of production units within sectors have reported a massive amount of heterogeneity in various performance measures (most notably, size and productivity). This heterogeneity, within sectors, matters for theoretical and empirical models of trade. Trade, or trade liberalization more generally, induces important reallocations between heterogeneous producers in a sector: the smallest, least productive producers are forced to exit, and market shares are further reallocated between less productive producers (who do not export) towards larger, more productive exporters. These reallocations generate a new channel for productivity and welfare gains from trade.


Comparative advantage Export market entry Extensive and intensive margins of trade Factor proportions Firm-level heterogeneity Firm-level productivity growth International trade Intra-industry trade Market share Monopolistic competition Open economy models of growth Product differentiation Skill-biased technical change Sunk costs of entry Trade costs Trade liberalization Trade models 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Marc J. Melitz
    • 1
  1. 1.