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Micro to Macro: Optimal Trade Policy With Firm Heterogeneity


Arnaud Costinot



The empirical observation that "large firms tend to export, whereas small firms do not" has transformed the way economists think about the determinants of international trade. Yet, it has had surprisingly little impact on how economists think about trade policy. Under very general conditions, we show that from the point of view of a country that unilaterally imposes trade taxes to maximize domestic welfare, the self-selection of heterogeneous firms into exports calls for import subsidies on the least profitable foreign firms. In contrast, our analysis does not provide any rationale for export subsidies or taxes on the least profitable domestic firms.


Costinot, A., Rodríguez-Clare, A., & Werning, I. (2020). Micro to Macro: Optimal Trade Policy With Firm Heterogeneity. Econometrica, 88(6), 2739-2776.

Journal Article Type Article
Acceptance Date May 6, 2020
Online Publication Date Nov 20, 2020
Publication Date Nov 20, 2020
Deposit Date May 12, 2020
Publicly Available Date Nov 20, 2020
Journal Econometrica
Print ISSN 0012-9682
Electronic ISSN 1468-0262
Publisher Econometric Society
Peer Reviewed Peer Reviewed
Volume 88
Issue 6
Pages 2739-2776
Keywords Economics and Econometrics
Public URL
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