MIMAT SIGNED

Project "MIMAT" data sheet

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 Partnership

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 Project objective

What determines the patterns of international trade and the associated welfare effects? Can individual incentives to trade diverge from societal objectives? Should governments intervene to promote or restrict international transactions? Questions like these have recently gained new salience, in Europe and elsewhere, due to renewed protectionist pressures and resurgent nationalistic tendencies arising from diffuse disenchantment with globalization. The aim of the research project is to highlighting key dimensions along which the answers to these questions obtained from conventional trade models with homogenous firms should be revisited in the light of permanent pervasive firm heterogeneity. In particular, the project will pursue four specific objectives through four integrated work packages providing new insights on how firm heterogeneity affects: (1) the ability of markets to deliver allocative efficiency; (2) The design of optimal multilateral trade policies; (3) The comparative advantages of countries; (4) The capabilities of a country as an exporter. The first work package will investigate whether the allocative inefficiency (“misallocation”) determined by firm heterogeneity in the presence of pricing distortions is quantitatively relevant for a country’s aggregate economic performance, and whether economic integration reduces or exacerbates such misallocation. The second work package will develop the theoretical implications of firm heterogeneity for trade policy, with special emphasis on the cooperative design of optimal multilateral trade agreements aimed at maximizing the joint welfare of all trade partners. The third work package will study how country, sector and firm characteristics interact to determine countries’ responses to trade liberalization. The fourth work package will investigate the distinct role of firm heterogeneity in determining a country’s ability to export through the shape of the productivity distribution of its producers.