There are two principal theories of why countries or regions trade: comparative advantage and increasing returns to scale. Yet there is virtually no empirical work that assesses the relative importance of these two theories in accounting for production structure and trade. We use a framework...

Does national market size matter for industrial structure? This has been suggested by theoretical work on "home market" effects, as in Krugman (1980, 1995). In this paper, I show that what previously was regarded as an assumption of convenience — transport costs only for the differentiated...

Since the seminal work of Krugman, product variety has played a central role in models of trade and growth. In spite of the general use of love-of-variety models, there has been no systematic study of how the import of new varieties has contributed to national welfare gains in the United States....

We show that supply-side financial shocks have a large impact on the investment decisions of firms. We do this by developing a new methodology to separate firms' credit shocks from loan supply shocks, using a vast sample of matched bank-firm lending data. We decompose loan movements in Japan for...