Firms in International Trade: Towards a New New Trade Policy

Abstract:     
This paper discusses the implications of recent developments in firm-based trade theory and empirics for trade policy. We sketch the evolution of this modern theory and review the implications of the available empirical analysis in order to demonstrate the need for a new new trade policy. We argue that the newest approaches to evaluating trade at the level of the firm, where trade actually takes place, imply that policies focused on overcoming the fixed costs of trade and reducing uncertainty will lead to increased trade at the extensive margin, which is where the biggest gains in productivity and welfare are found. Nevertheless non-discrimination and reciprocity still anchor the trading system and comparative advantage still has its influence, if at the level of trade in tasks. The traditional market access agenda ought now to be less important on the multilateral agenda than services, customs cooperation, standards, trade facilitation, procurement, and innovation policy. The analytic needs of the new new trade policy require new models, and more access to firm-level data to appropriately formulate and evaluate the impacts of trade policy.

Number of Pages in PDF File: 14

JEL Classification: F10, F13

working papers series