The Market Structure Simulation of Heterogenous Firms

The paper aims at the need for economic policy evaluators to assess how and whether specific measures can influence the development of markets in a way that achieves greater wealth. Therefore, this study concentrates on well-documented firms’ heterogeneity that significantly impact their ability to compete, influence the market structure, and decide to participate in trade. For the initial attributes and features of the simulated model, we chose Ottaviano demand function. However, we took a different approach regarding demand and its elasticities in the market by employing distributional functions to model the market demand and the demand for each firm’s product. Allowing for the evolution of the market structure, the model reveals the importance of endowment factors and suggests the crucial role of firms’ abilities to compete. What is more important—it affects the time needed for the market structure formation. Although the model does not track all the aspects of a firm’s heterogeneity, it might guide economic policy makers to not only support the business in increasing its capabilities but keep it struggling over the competition to impede the collecting of Ricardian rents.

Corporate Cash and Employment

In the aftermath of the US financial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on US data, we argue that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across firms. We develop a dynamic general equilibrium model where heterogenous firms need cash and external liquid funds in their production process. We analyze the dynamic impact of aggregate shocks and the cross-firm impact of idiosyncratic shocks. We show that external liquidity shocks generate a negative comovement between the cash ratio and employment, as documented in the data. (JEL E24, E32, G32, J23)

Income Distribution, Market Structure, and Individual Welfare

This paper explores how income distribution affects market structure, prices, and economic well-being of different consumer groups. I consider a general equilibrium model of monopolistic competition with free entry, heterogenous firms and consumers that share identical but non-homothetic preferences. The results in the paper suggest that poverty reduction might be of a greater importance than lowering income inequality, as lower income inequality does not necessarily lead to welfare gains of the poor. In particular, I show that higher income inequality may benefit the poor via a trickle-down effect operating through the entry of firms into the market.

Firms in International Trade

Since the mid-1990s, researchers have used micro datasets to study countries' production and trade at the firm level and have found that exporting firms differ substantially from firms that solely serve the domestic market. Across a wide range of countries and industries, exporting firms have been shown to be larger, more productive, more skill- and capital-intensive, and to pay higher wages than nonexporting firms. These differences exist even before exporting begins and have important consequences for evaluating the gains from trade and their distribution across factors of production. The new empirical research challenges traditional models of international trade and, as a result, the focus of the international trade field has shifted from countries and industries towards firms and products. Recently available transaction-level U.S. trade data reveal new stylized facts about firms' participation in international markets, and recent theories of international trade incorporating the behavior of heterogenous firms have made substantial progress in explaining patterns of trade and productivity growth.