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Powerless : gains from trade when firm productivity is not Pareto distributed

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Abstract

Most trade models featuring heterogeneous firms assume a Pareto productivity distribution, on the basis that it provides a reasonable representation of the data and because of its analytical tractability. However, recent work shows that the characteristics of the productivity distribution crucially affect the estimated gains from trade. This paper thoroughly compares the gains from trade obtained under different productivity distributions: we find that both the magnitude of the welfare gains and the relative importance of the fixed versus variable trade costs change significantly. Relying blindly on a single distribution is therefore dangerous when performing welfare analysis.
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hal-03459690 , version 1 (01-12-2021)

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Stefano Schiavo, Marco Bee. Powerless : gains from trade when firm productivity is not Pareto distributed. 2015. ⟨hal-03459690⟩

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