Skip to Main content Skip to Navigation
Other publications

The selection effect of two-way trade in the Melitz model: an alternative approach

Abstract : This paper studies the influential Melitz model of trade with heterogeneous firms using an alternative, intuitive approach. Contrary to what is often argued, it is an increase in product market competition that drives the bad firms out: with two-way trade, entry by foreign firms is not compensated by a “sufficient” reduction in the mass of surviving firms. To illustrate this, we decompose the total effect of trade in two partial effects: a domesticprofit-reducing effect due to foreign market penetration by the most productive firms; an average-profitreducing effect due to the payment of the fixed export costs. We also provide the new prediction that trade generally leads to (weakly) less entry in the industry. This clarifies key interpretation issues in a prolific literature.
Document type :
Other publications
Complete list of metadata

Cited literature [6 references]  Display  Hide  Download
Contributor : Anne Crepin Connect in order to contact the contributor
Submitted on : Tuesday, January 11, 2011 - 11:00:01 AM
Last modification on : Thursday, February 3, 2011 - 9:47:34 AM
Long-term archiving on: : Tuesday, April 12, 2011 - 2:42:50 AM


Publisher files allowed on an open archive


  • HAL Id : hal-00554724, version 1



Jacques Potin. The selection effect of two-way trade in the Melitz model: an alternative approach. 2009. ⟨hal-00554724⟩



Record views


Files downloads