Differentiated Products, Divided Industries: Firm Preferences Over Trade Liberalization

20 Pages Posted: 16 Jun 2016

Date Written: July 2016

Abstract

The recent focus on firms in international trade suggests two conjectures about preferences over trade policy – only the most productive firms should support freer trade, and industries can be internally divided over reciprocal liberalization. This paper clarifies the content and scope of these claims. The most productive firms are generally not the greatest beneficiaries from trade liberalization and may oppose further liberalization due to increased competition in export markets from compatriot firms. Exporting industries will feature no support for trade if foreign competition is too strong or barriers too unequal. The key analytic factor generating intra‐industry division is product differentiation, both directly, by increasing export opportunities for less efficient firms, and by inducing home market effects wherein larger countries are more competitive. The implications of these findings for the distributional effects of liberalization and the study of trade politics are discussed.

Suggested Citation

Osgood, Iain, Differentiated Products, Divided Industries: Firm Preferences Over Trade Liberalization (July 2016). Economics & Politics, Vol. 28, Issue 2, pp. 161-180, 2016. Available at SSRN: https://ssrn.com/abstract=2796364 or http://dx.doi.org/10.1111/ecpo.12075

Iain Osgood (Contact Author)

Harvard University ( email )

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