Theories of trade and growth with heterogeneous firms and asymmetric countries

Abstract

This paper proposes two models of trade and growth with heterogeneous firms and asymmetric countries based on the author’s recent research. After introducing the Melitz model with two symmetric countries and the Baldwin - Robert - Nicoud and related endogenous growth models, we allow for asymmetric countries by giving up either firms’ infinite horizon or transitional dynamics. We focus on the effects of policy shocks on countries’ productivity cutoffs, which provide much information about countries’ welfare and growth. We first see how the cutoffs are determined under symmetric countries, and then how they are additionally affected by endoge nous factor prices under asymmetric countries.