Sectoral structure, heterogeneous plants, and international trade

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Abstract

I examine the impact of trade policy on manufacturing plant behavior by developing a methodology that addresses both plant heterogeneity and intersectoral resource reallocation. A plant-level microsimulation based upon the industry structure of Bernard et al. (2003) is linked to a multi-sector computable general equilibrium model. This linkage permits an analysis of plant-level behavior that encompasses the trade-induced changes in factor prices and consumption patterns. The methodology is applied in the examination of two counterfactual trade policy scenarios on the Chilean manufacturing sector. The results suggest that trade liberalization leads to a reallocation of output toward the most productive producers. This result is driven by two primary causes: (a) a reduction in the price of inputs that promotes the expansion of output by the most productive producers and (b) increased competition from overseas that drives the least productive producers out of the market.

Original languageEnglish
Pages (from-to)1967-1976
Number of pages10
JournalEconomic Modelling
Volume28
Issue number4
DOIs
Publication statusPublished - Jul 2011
Externally publishedYes

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All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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