Occupational Choice, Aggregate Productivity, and Trade
10 Pages Posted: 18 Jul 2013
Date Written: August 2013
We propose occupational decisions of heterogeneous individuals as an alternative mechanism of explaining the distribution of firm productivities emphasized by empirical studies. Thus, we integrate the frameworks of Melitz (Econometrica 71 (2003):1695–725), and of Manasse and Turrini (Journal of International Economics 54 (2001):97–117) that establish the theoretical base of trade models with heterogeneous firms. Our model is technically much simpler than the Melitz approach while preserving the main results on firm‐selection effects caused by international market integration. Our approach paves the way for detailed analysis of institutions in a heterogeneous firm model to better understand the link between institutions and an economy's productivity distribution.
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