Multi-Product Firms, Factor Endowment and Trade Liberalization

Abstract

This paper develops a model of multi-product firms in the presence of different types of labor. I show that an increase in the supply of skilled labor has non- uniform impact on the firm scope: a rise in the number of skilled labor allows the highly productive firms to add more varieties into their product profile but has the less productive firms reduce their scope. The markets become more competitive which generates welfare gains. Under economic integration, countries gain in general but the problem of income distribution arises. In addition, in the imperfect labor market the model generates predictions regarding the trade patterns based on the country endowment. The predictions are consistent with Chinese export data in 2004.