Three essays on heterogeneous firms and international trade

It has been shown by several empirical studies that countries are heterogeneous in productivity and exporting behaviors even within a narrowly defined industry, which suggests that trade generates reallocations of factors within industry and affects industry productivity. The purpose of this thesis is to incorporate firm heterogeneity in international trade models and investigates this process.; In the first chapter, I build a monopolistic competition model with agents heterogeneous in productivities. By adopting a subutility function with a translog expenditure function as Feenstra (2003) did, the elasticity of residual demand is endogenous and increases with competition. The extra competition brought by trade has asymmetric impacts on elasticity of demand for agents with different productivity and causes reallocations of factors, which forces low-productivity firms to exit.; In the second chapter. I adapt Caselli and Gennaioli (2002) to monopolistic competition and endogenously generate firm heterogeneity by imperfect correlations of managerial talents across generations and a, lack of financial and contract infrastructures. Contrary to recent studies, the model demonstrates that only when the imperfections are higher than an endogenous level do trade-induced resource reallocations improve the efficiency of entrepreneurial selection and possibly increase industry productivity. Otherwise, trade decreases the efficiency of entrepreneurial selection and must reduce industry productivity.; In the third chapter, I incorporate firm heterogeneity endogenously generated by the imperfections in the financial institutions in a H-O framework and analyzes the effects of trade on the efficiency of entrepreneurial selection, industry productivity, and development of financial institutions. In the short-run, when the imperfections are exogenous, this research shows that countries with worse financial institutions enjoy positive pecuniary externality generated by other countries, which increases efficiency of entrepreneurial selection and average productivity. The reverse holds true for countries with better financial institutions. In the long-run, when government can adjust the provision of the financial infrastructure the results can be reserved because of comparative advantage or disadvantage in maintaining the institutions and the pecuniary externalities from other countries.