Trade liberalisation with mobile capital and firm heterogeneity

Xi Yang, Dao Zhi Zeng

Research output: Contribution to journalArticlepeer-review


This paper develops a general equilibrium model that captures the delocation of firms, imbalance of trade in goods and firm selection into export markets. We show that, in the presence of capital being mobile across countries and firms being heterogeneous in productivity, the spatial inequalities in wages and firm allocations are differently affected by trade liberalisation. We explore the welfare effects of trade through two channels: changes in the share of expenditure on domestic goods and factor price adjustments to the spatial reallocation of capital. Selection into export markets magnifies the impact of mobile capital on the welfare gains from trade.

Original languageEnglish
Pages (from-to)530-559
Number of pages30
JournalWorld Economy
Issue number2
Publication statusPublished - 2021 Feb


  • firm heterogeneity
  • gains from trade
  • international inequalities
  • mobile capital

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Political Science and International Relations


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