We study how financial frictions affect firm-level heterogeneity and trade. We build a model where productivity differences across monopolistically competitive firms are endogenous and depend on investment decisions at the entry stage. By increasing entry costs, financial frictions lower the...

We study the equilibrium determinants of firm-level heterogeneity in a model in which firms can affect the variance of their productivity draws at the entry stage and explore the implications in closed and open economy. By allowing firms to choose the size of their investment in innovation...