Trade and Industrial Policies with HeterogeneousFirms: The Role of Country Asymmetries

This paper explores the role of country asymmetries for trade and industrial policies withheterogeneous firms. Our analysis delivers a number of novel results. First, trade policies,infrastructure policies and industrial policies which improve the business conditions in onecountry have negative productivity and welfare effects on the trading partner. Second,symmetric trade liberalization is immiserizing for a trading partner whose business conditionsare inferior. Third, there are gains from trade even for a country whose monopolisticallycompetitive sector with heterogeneous firms is wiped out by the switch from autarky to trade....