Starting with the seminal paper of Melitz (2003), there
is now overwhelming evidence that industries are characterized by firms with
large productivity differences co-existing simultaneously (see Bernard and
Jensen, 1999, 2001, Bernard et al, 2003). Melitz develops a dynamic monopolistic
competition model in which firms differ in terms of productivity. Trade creates
a Darwinian environment in which the least efficient firms contract or exit the
market, stimulating the productivity of the more efficient firms. These
productivity introduce new sources of comparative advantage. Furthermore,
productivity differences introduce different choices for the organization of
production: the least efficient firms only enter the domestic market, the most
efficient firms become multinational, and in between are exporting firms. So in
this approach, trade and FDI patterns and organizational structures are in
principle jointly determined, see Helpman, Melitz, and Yeaple (2004),
Barba-Navaretti and Venables (2004), Helpman (2006), Helpman, Melitz, and
Rubinstein (2008), and Melitz and Ottaviano (2008).
3 ECTS
Course dates
Block 5
13, 20, 27 May and 10, 17 June 2011