Essays on heterogeneous firms in international economics

The three essays comprising this thesis investigate the importance of the role of heterogeneous firms in the determination of firm-level and aggregate variables of the economy. Recent empirical research has pointed out the remarkable heterogeneity in firms operating in the economy. This is in sharp contrast with the homogeneous representative firm commonly seen in the economic literature. In this thesis, I extend recent theories of heterogeneous productivity firms and test the predictions of these new models with the data along some crucial dimensions: cross-sectional observations, comparative statics of trade liberalization episodes, panel observations and business cycle statistics.; In the first essay, I build a general equilibrium model of trade in which firms with heterogeneous productivity decide not only the level of production, but also the degree to which they access a market. This offers an analytically tractable framework that retains the main theoretical predictions of the previous trade models. It also brings the predictions of the model closer to the data when looking at the cross-section of domestic and export sales of firms and the comparative statics of trade liberalization episodes.; In the second essay, I extend the abovementioned framework to include firm dynamics. I assume that firms' productivities evolve randomly over time according to a stochastic process. Combined with the framework above, the model can deliver new predictions consistent with panel data observations on domestic and export sales. The model predicts that many small firms enter and exit the market very frequently and that the growth rate as well as the variance of the growth rate of sales is higher for small firms. These implications are consistent with panel data on firms' domestic and exporting sales.; The third essay evaluates the role that heterogeneous firms engaged in trade play in the transmission of aggregate fluctuations among countries. The main finding is that a model that allows for endogenous specialization of heterogeneous firms in trade has the potential to generate comovement of cross-country variables significantly different from that implied by the model with fixed specialization.