1 Department of Economics, Aarhus School of Business, Aarhus BSS, Aarhus University2 GlobID -Globalization and Industry Dynamics, Aarhus School of Business, Aarhus BSS, Aarhus University3 Department of Economics and Business Economics, Aarhus BSS, Aarhus University4 Vilnius University5 Department of Economics and Business Economics, Aarhus BSS, Aarhus University
This paper presents a dynamic international trade model based on monopolistic competition, where observed intra-industry differences at a given point in time reflect different stages of the firm's life cycle. New product varieties of still higher quality enter the market every period rendering old varieties obsolescent in a process of creative destruction. For given technology (variety) production costs decrease after an infant period due to learning. It is shown that several patterns of exports may arise depending primarily on the size of fixed trade costs. At a given point in time firms therefore differ due to different age, although all firms are symmetric in a life cycle perspective. The paper thus offers an alternative view on firm heterogeneity compared with other recent papers, where productivity differences appear as an outcome of a stochastic process.