Firms in International Trade: Trade Policy Implications of the New New Trade Theory
| DOI | http://doi.org/10.1111/1758-5899.12183 |
| Author | John Curtis,Robert Wolfe,Beverly Lapham,Terry Collins‐Williams,Dan Ciuriak |
| Published date | 01 May 2015 |
| Date | 01 May 2015 |
Firms in International Trade: Trade Policy
Implications of the New New Trade Theory
Dan Ciuriak
Ciuriak Consulting
Beverly Lapham
Queen’s University
Robert Wolfe
Queen’s University
With
Terry Collins-Williams
DFATD (retired)
John Curtis
C.D. Howe Institute and ICTSD
Abstract
This paper explores the implications of recent developments in firm-based trade theory and empirics for trade policy
and negotiations. While traditional trade theory focused on the country, and the new trade theory of the 1980s
adopted the industry as the unit for analysis, the newest theory emphasizes the role of firms and firm heterogeneity in
international trade. We describe insights from this reformulation of theory and the empirical literature that illuminates
it. The realities of trade as now understood show the need for a new new trade policy. Evaluating trade at the level of
the firm implies that overcoming firm-level fixed costs of trade and reducing uncertainty lead to increased trade along
margins that generate the highest productivity, innovation and welfare gains. The traditional market access agenda
ought now to be less important on the multilateral agenda than services, standards, trade facilitation, procurement and
innovation policy. The analytical needs of a new new trade policy require new models and more access to firm-level
data to formulate and evaluate the multifaceted impacts of trade policy.
Policy Implications
•Heterogeneous firm models allow trade negotiators to evaluate the impact of policy on the potential expansion of
trade in products that previously were not traded, the diversification of exported products into new markets and
the entry of new trading firms.
•New models support the importance trade negotiators now attach to lowering the domestic regulatory obstacles
that restrict market access for firms.
•Negotiators need access to quantitative studies on how individual firms (traders, nontraders and potential traders)
will be affected by changes in policy.
When national competitiveness is invoked as a policy
objective, trade experts often retort that countries do not
trade, firms do. This focus on the importance of the firm
in international trade is consistent with recent develop-
ments in trade theory and helps to explain observed
trends in the agenda for trade negotiations. In this paper
we provide an overview of recent developments in trade
theory and empirics. We discuss the implications of these
recent developments for trade policy and negotiations.
This conceptual review is primarily directed toward trade
©2014 University of Durham and John Wiley & Sons, Ltd. Global Policy (2015) 6:2 doi: 10.1111/1758-5899.12183
Global Policy Volume 6 . Issue 2 . May 2015
130
Research Article
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