Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/71347
Authors: 
Cole, Matthew T.
Year of Publication: 
2010
Series/Report no.: 
Working Paper Series, UCD Centre for Economic Research 10/09
Abstract: 
There has been great focus in the recent trade theory literature on the introduction of firm heterogeneity into trade models. This introduction has highlighted the importance of the entry/exit decision of firms in response to changes in trade barriers. However, it is typical in many of these models to use iceberg transport costs as a general form of trade barriers that can be interchangeable with ad valorem tariffs. I show that this is not always an appropriate conclusion. Specifically, I illustrate that profit for an exporter is more elastic in response to tariffs than iceberg transport costs, which has implications for total product variety. One such implication is the possibility for there to be an anti-variety effect associated with lower transport costs while there also being a pro-variety effect associated with lower tariffs.
Subjects: 
Intra-industry trade
Trade policy
Firm heterogeneity
Monopolistic competition
JEL: 
F10
F13
F15
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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