Holger Breinlich, Alejandro Cuñat, 07 September 2013

Recent development of heterogeneous firm models in international trade were built on the observation that extensive margin effects are important in explaining the trade and productivity effects of trade liberalisation. This columns adds that if we want to use the current generation of heterogeneous firm models for the purpose of forecasting the effects of trade agreements, we need to allow not only for sources of within-industry but also within-firm productivity increases.

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