Empirical evidence has shown that exporters are more capital intensive than non-exporters. Based on this evidence, I construct a two-factor general equilibrium model with firm heterogeneity in factor intensities, monopolistic competition, scale economies and international trade. This setting can explain several empirical regularities on international trade, factor market competition, factor relocations and factor returns: (i) exporters are more capital intensive than non-exporters, regardless of a country's relative factor endowments; (ii) finite supply of capital limits a country's export activities; (iii) trade liberalization increases the relative return to capital; (iv) new profit opportunities in export markets change the distribution of firms towards the more capital intensive ones. Finally, I extend the setting to endogenous capital accumulation and show that trade liberalization induces economic growth and, in the long-run, benefits all factors in real terms.

Economic growth, Factor market competition, Firm heterogeneity in factor input ratios, Income distribution, International trade
dx.doi.org/10.1016/j.jedc.2013.09.005, hdl.handle.net/1765/64927
Journal of Economic Dynamics and Control
Erasmus School of Economics

Emami Namini, J. (2014). The short and long-run impact of globalization if firms differ in factor input ratios. Journal of Economic Dynamics and Control, 38(1), 37–64. doi:10.1016/j.jedc.2013.09.005