By Éloi Laurent and Paul Malliet

On the eve of the climate summit organized by the
Biden administration on 22 and 23 April, which will be attended by 40 heads of
state and government, we offer here some initial reflections on a critical issue
facing international climate negotiations: how should the effort to reduce
emissions be shared between countries within the framework of the United
Nations?

The news on the climate emergency front at the
start of 2021 is mixed, which might not be so bad: the new US administration’s
willingness to assume leadership on the climate agenda, within a multilateral
framework, contrasts with the obscurantist obstructionism of the previous
administration. Furthermore, 110 countries have announced their commitment to
achieving carbon neutrality by 2050, with China sharing this goal, but by 2060[1].

But in order to close the gap between the speed being
attained by natural energy systems and the inertia inherent in today’s economic
and political systems, these encouraging geopolitical dynamics must pick up the
pace. In this respect, one key indicator is the gap between the status quo of
current policies (“business as usual”) and the full
implementation of the commitments made in the wake of the Paris Agreement: if
all the commitments currently formulated and described in the States’ respective
national contributions were really met, we would be heading towards 2.6° of
warming by the end of the century; if everything continues as it is today, we
are heading towards 2.9° of warming. As it stands today, the Paris Agreement
(which has led to undeniable progress) is therefore worth only 0.3 degrees, or
about a decade and a half of warming at the annual rate observed since 1981[3].

A new global climate strategy must therefore be developed
and implemented, and it needs to bear fruit starting from the COP-26 meeting next
November in Glasgow. The Biden administration is organizing a summit on 22 and
23 April, which will be attended by 40 heads of State and government. In line
with the American Jobs Plan, the agenda for this meeting  emphasizes the economic gains expected from decisive
climate action. But it fails to address the need for coordination: how should
national efforts at emissions reduction be shared among the world’s countries?
On the basis of what criteria? In other words, how can we map out the path
towards the orientation indicated by the Paris Agreement?

We are proposing here an embryonic reflection
(which we will elaborate on in the run-up to COP-26) on the question which, in
our view, is now the raison d’être of international climate negotiations: how
to share the effort to reduce emissions between countries within the framework
of the United Nations?

In the light of the IPCC’s Special Report on 1.5°
published in 2018, we determine a global carbon budget, which in 2019 amounted
to 945 GtCO₂e; this corresponds to an intermediate target
between the 1.5° and 2° budget associated with the 67th percentile of the Transient
Climate Response to Emissions (TCRE),[4] in line with the goals set in Article 2 of the
Paris Agreement.

The question of the fair distribution of this
global carbon budget has been the subject of numerous studies (for a summary and
proposals, see for example Bourban, 2021), but there is currently no work that integrates a
complete vision of the three justice criteria identified in the academic
literature – equity, responsibility and capacity – in order to determine an operational distribution
of national efforts to avoid the climate catastrophe.

With this in mind, we focus our analysis on the top
20 emitting countries,[5] which accounted for 77% of emissions in 2019. We
assume that the emissions reduction target will be shared by all countries by
2050 and that the carbon budget therefore covers the next 30 years, which
translates into an average annual budget of around 30 GtCO₂e (for comparison, 36 GtCO₂e
were emitted in 2019). We take as a starting point an equal distribution among
all members of humanity in 2019, meaning an initial allocation of 122.5 tCO₂e
up to 2050, i.e. about 4 tCO₂e per year (a country’s budget being the
aggregation of the individual allocations of its total population).

We interpret the equity criterion as meaning equal
access of the world’s citizens to the greenhouse gas (GHG) storage capacity of
the atmosphere (this corresponds to a universal carbon endowment corrected for
each major emitter for its population and for population growth by 2050).

Our responsibility criterion is the amount of GHGs
already emitted since 1990 in consumption, thus combining a spatial justice
criterion with a temporal criterion, reflecting the global as well as the
historical responsibility of individual countries.

Finally, the capacity criterion is expressed here by the United Nations Human Development Index (HDI), which by construction ranges from 0 to 1, and which we relate for each country to the world average (which in 2019 was 0.737). Thus, countries whose HDI is lower than this world average would see their budget increase in proportion to their human underdevelopment, and vice versa for developed countries, i.e. they would see their budget decrease in the opposite direction (Figure 1).

The equity criterion generally operates a
reallocation from countries with a falling population to those with a rising population,
which are almost entirely located in sub-Saharan Africa. In this respect, based
on this criterion China undergoes a reduction in its budget of 44 GtCO₂e
(almost 25%), while the rest of the world benefits from an increase of 86 GtCO₂e.
The responsibility criterion appears to be the main determinant leading to a
reallocation of the global budget between countries, with a transfer of nearly
263 GtCO₂e from the OECD countries to the so-called
developing countries. The capacity criterion also leads to a reallocation
towards developing countries, but much less (almost 34 GtCO₂e
in total)[6].

Thus each criterion plays out differently (either
by the nature of the rebalancing or by its extent), suggesting that the
interplay of this relatively simple set of three criteria does indeed enable different
understandings or conceptions of climate justice to be translated into a
distribution of the burden of the mitigation effort (Figure 2).

Note: Each bar indicates the effect of each criterion,
taken independently of the others, on the average annual carbon budget per
country. For example, while each American citizen has an initial allocation of
4 tCO₂e, the equity criterion leads to this budget being reduced to 3.73 tCO₂e, the application of the responsibility principle leads to the
initial allocation turning negative and corresponding to a debt of 13 tCO₂e, and the capacity criterion reduces the initial allocation to
3.25 tCO₂e. The aggregation of these
different criteria results in a total negative budget[7] of 9.5 tCO₂e per capita per year.

However, this representation does not tell us
anything about the future emissions trajectories of the different countries,
the instruments that will be implemented and the justice criteria specific to
each country that will govern the deployment of these instruments. In a second
stage of our analysis, we will propose possible distributions of the budget
globally determined for France in order to appreciate the issues of climate
justice, moving from the global to the national and finally to the individual. In
any case, this first step informs us about what could be a fair distribution capable
of more explicitly capturing the guiding principle of the international
community since the Rio summit in 1992 of “shared but differentiated
responsibility”.

In the light of this initial analysis, one point
seems perfectly clear: if the new US administration does indeed intend to
reassume global climate leadership, in association with the European Union, it will
have no choice but to face the existence of a climate debt to the rest of the
world. Given its level, it is illusory to believe that this can be offset by
hypothetical negative emissions, and should therefore be subject to one form or
another of compensation[8]. This could for example mean much more significant
amounts than those currently paid into the Green Climate Fund, which is still
largely underfunded in relation to the initial stated ambition of reaching a
budget of $100 billion in 2020.

A second point is that China can no longer claim to
be a major emerging country in the climate negotiations, with an exploding
emissions trajectory that is supposedly part of its right to development and
economic growth. In 2020, and taking into account all the criteria adopted, its
carbon budget, at 21 Gt, would be close to that of Indonesia, which has one-fifth
of China’s population.

It seems that the Biden administration wants to
mark Earth Day on 22 April with two announcements: one concerning new 2030
climate ambitions for the United States and the other concerning further
emissions reductions by the invited heads of State and government. These
announcements will be fully credible only if the US manages to reconcile its
national ambition with its global responsibility, and thereby convince China to
do the same.

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[1] This represents about 50% of the population as well
as global GHG emissions.

[2] Climate Action Tracker, December 2020 projection https://climateactiontracker.org/publications/global-update-paris-agreement-turning-point/

[3]  Source: NOOA.

[4] The TCRE translates the average variation of
average temperature with the stock of carbon in the atmosphere with an
associated probability. In our analysis this translates into the following:
There is a 67% chance that the carbon budget in question will lead to a
temperature rise limited to 1.75°.

[5] The top 20 emitting countries in 2019 were: the United
States, Canada, Saudi Arabia, Australia, Germany, Japan, Russia, the United
Kingdom, Italy, South Korea, Poland, France, South Africa, Iran, China, Mexico,
Turkey, Brazil, Indonesia, and India. We also include the 27-Member European
Union to provide a basis for comparison.

[6] Note that among the countries we distinguish, only
India would see its budget increase, but just by 3%.

[7] A negative budget here reflects the fact that the
historical emissions taken into account via the responsibility criterion is
higher than the current carbon budget allocated via the other criteria.

[8] The question of the monetary valuation of past
emissions is a research topic in itself that we do not address in this text. As
an illustration, a valuation of one tonne of CO2 at $1 would lead to a global
amount of $263 billion, and for a valuation at $20, it would be $5260 billion.

Elliot Aurissergues (Economist at the OFCE)

As
the health constraints caused by the pandemic continue to weigh on the economy
in 2021, the challenge is to get GDP and employment quickly back to their
pre-crisis levels. However, companies’ uncertainty about their levels of
activity and profits in the coming years could slow the recovery. In order to
cope with the possible long-term negative effects of the crisis, and weakened
by their losses in 2020, companies may seek to restore or even increase their
margins, which could result in numerous restructurings and job losses. Economic
recovery could take place faster if business has real visibility beyond 2021. While
it is difficult for the current government to make strong commitments, on the
other hand mechanisms that in the long term are not very costly for the public purse
could make it possible to take action.

Post-pandemic uncertainty will hold back a recovery

In economic terms, the pandemic represents an atypical crisis. It combines both goods and labour supply shocks and a fall – largely constrained – in consumption (Dauvin and Sampognaro, 2021). There are not many recent episodes that can provide useful points of comparison for economic actors. Some elements do indicate a rapid return to normalcy, including the dynamism of some Asian economies, in particular the Chinese economy, and the resilience of the US economy and the Biden administration’s economic policy. On the other hand, there are other factors that may limit economic growth in the coming years. The heavy losses of some companies could lead to a wave of bankruptcies (Guerini et al., 2020; Heyer, 2020), with possible negative effects on productivity or the employment of certain categories of workers. Some consumption patterns could be modified permanently, with a heavy impact on sectors like aeronautics and retailing. The trajectories of some of the emerging economies are another unknown, as they cannot afford the same level of fiscal support as do the US and Europe. Finally, the concentration of the shock on sectors that tend to employ low-skilled workers risks increasing inequalities within countries, and thus generating a further rise in global savings. Some indicators reflect this still high uncertainty. The VIX index, which captures market expectations for the volatility of US stock prices, remains twice as high as before the crisis and is comparable to the levels reached during the Dotcomcrisis (see Figure 1). In France, the business and jobs climate has rebounded strongly from its historical low in March-April 2020, but is still at the same level as during the low point of the eurozone crisis in 2012-2013 (see Figure 2).

The literature shows that uncertainty about the medium-term path of the economy affects the way companies behave today. By identifying uncertainty with stock price volatility, Bloom (2009) suggests that it has had a significant negative impact on GDP and employment in the US. A number of other studies have used different methodologies to confirm this idea [1]. Given the severity of the recession in 2020, uncertainty could have an even greater impact. Effects that are usually second-order may be enough to derail an economic recovery.

A proposal for giving visibility to businesses

The
measures in France’s current stimulus package basically focus on 2021 and 2022
and do not give any visibility to businesses about their activity or cash flow
beyond 2022. It is true that it is difficult for the current government to
commit to major expenditures that would have to be assumed by future
governments. However, it is possible to envisage relatively strong measures that
have limited budgetary costs over the next ten years (and therefore a limited
impact on the fiscal manoeuvring room of future governments).

Proposal: Give companies the following option: a subsidy of 10% of their wage bill (wages under 3x the minimum wage – the SMIC) between 2022 and 2026 in exchange for an additional tax of 5% on their gross operating profits (EBITDA) over the period 2022-2030.

For
firms applying for the scheme, this is the fiscal equivalent of a temporary
recapitalization. They exchange a subsidy today for a fraction of their
profits tomorrow. The implicit cost of capital would be particularly
attractive. The scheme is calibrated so that its “interest rate” (given by the
ratio between the sum of additional taxes over 2022-2030 and the sum of
subsidies over 2022-2026) is close to 0% for the “average” French company. This
rate would be lower a posteriori for companies that will have performed
less well than expected. Compared with other recapitalization methods such as
direct public shareholdings or the conversion of loans into quasi-equity, there
is no risk that the current shareholders will lose control of the company.

The
advantage of the scheme is that it automatically targets the companies that
face the greatest need. The businesses that anticipate possible economic
difficulties over the next few years and that have employment-intensive
activities will self-select, while others will have no interest in applying for
the subsidy. As the subsidy is disbursed gradually, companies that maintain
employment over the period will be favoured. Capital-intensive and high-growth
companies would not be penalized, as the scheme would remain optional. The
additional tax on EBITDA is temporary and should not have a negative impact on
investment by those applying for it.

The
cost in terms of public debt up to 2030 would be low: about 10 billion euros[2], or 0.4 percentage points of GDP, if all companies
were to apply. The self-selection effect of the scheme would increase the
average cost per beneficiary company but would also decrease the number of
beneficiaries, thereby having an ambiguous impact on the total cost. This does
not take into account the beneficial impact of the scheme on the public
finances in so far as it prevents job losses and the non-repayment of certain
guaranteed loans. The fiscal impulse over 2022-2025 could on the other hand be
quite strong, on the order of 1 to 1.5 GDP points per year (i.e. 4 to 6 GDP points
over the four years) but would be counterbalanced by an automatic increase in
revenue over 2025-2030[3].

Bibliography

Bachmann R., S. Elstner and E. Sims, 2013,
“Uncertainty and Economic Activity: Evidence from Business Survey
Data”, AEJ
macroeconomics, https://www.aeaweb.org/articles?id=10.1257/mac.5.2.217

Belianska A., A. Eyquem and C. Poilly, 2021, “The
Transmission Channels of Government Spending Uncertainty”, working paper, https://halshs.archives-ouvertes.fr/halshs-03160370

Bloom N., 2009, “The impact of uncertainty shocks”,
Econometrica, https://onlinelibrary.wiley.com/doi/abs/10.3982/ECTA6248

Dauvin M. and R. Sampognaro, 2021, “Behind the
Scenes of Containment: Modelling Simultaneous Supply and Demand Shocks”, OFCE working papers, https://www.ofce.sciences-po.fr/pdf/dtravail/OFCEWP2021-05.pdf

Fernandez-Villaverde J. and P. Guerron-Quintana,
2011, “Risk Matters: The Real Effects of Volatility Shocks”, American Economic Review, https://www.aeaweb.org/articles?id=10.1257/aer.101.6.2530

Fernandez-Villaverde J. and P. Guerron-Quintana,
2015, “Fiscal volatility shocks and economic activity”, American Economic Review, https://www.aeaweb.org/articles?id=10.1257/aer.20121236

Guerini M., L. Nesta, X. Ragot and S. Schiavo,
2020, “Firm
liquidity and solvency under the Covid-19 lockdown in France”, OFCE policy brief, https://www.ofce.sciences-po.fr/pdf/pbrief/2020/OFCEpbrief76.pdf

Heyer E., 2020,
“Défaillances d’entreprises et destructions d’emplois: une estimation de
la relation sur données macro-sectorielles”, Revue de l’OFCE, https://www.ofce.sciences-po.fr/pdf/revue/7-168OFCE.pdf

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[1] Fernandez-Villaverde, Guerron-Quintana,
Rubio-Ramirez and Uribe (2011) show that increased interest rate volatility has
destabilizing effects on Latin American economies. In a 2015 paper, the same authors
suggest that increased uncertainty about future US fiscal policy leads firms to
push up their margins, reducing economic activity. This result has been confirmed
by Belianska, Eyquem and Poilly (2021) for the euro zone. Using consumer
confidence surveys, Bachmann and Sims (2012) show that pessimistic consumers
reduce the effectiveness of fiscal policy during a recession. Finally,
uncertainty among CEOs has a negative impact on output, as shown by German data
analysed by Bachmann, Elstner and Sims (2013).

[2] The total of wages below 3 SMICs in 2019 was
on the order of 480 billion euros (the total of gross wages and salaries came
to 640 billion for non-financial companies, and the latest INSEE data suggest
that wages below 3 SMICs represent 75% of the wage bill, an amount that seems
consistent with the data on the cost of France’s CICE tax scheme). The EBITDA
of non-financial companies was 420 billion euros. Based on these 2019 figures,
and if all companies were to apply for the scheme, the total subsidy would
amount to 0.1 x 480 x 4 or 196 billion euros. The EBITDA tax would under the
same assumptions yield 0.05 x 420 x 8 + 0.05 x 196 (5% of the subsidy will be
recovered viathe extra EBITDA) or 186 billion euros.

[3] This additional tax revenue should not penalize
activity over this period because (1) it will concern capital income for which
the marginal propensity to consume is rather low, and (2) the beneficiary
companies should be able to anticipate it correctly.

Stéphane Auray and AurélienEyquem

The
strong globalization of economies has increased interest in the importance of markups
for companies with an international orientation. A markup is defined as the
difference between the marginal cost of production and the selling price.
Empirical evidence is accumulating to show that these markups have increased
significantly in recent years (Autor, Dorn, Katz, Patterson, and Reenen, 2017;
Loecker, Eeckhout, and Unger, 2020) and that large corporations account for a
growing share of the aggregate fluctuations (Gabaix, 2011). Moreover, the
dispersion of markups is considered in the literature as a potential source of a
misallocation of resources – capital and labour – in both economies considered to
be closed to international trade (see Restuccia and Rogerson, 2008, or Baqaee
and Farhi, 2020) and economies considered to be open to trade (Holmes, Hsu and
Lee, 2014, or Edmond, Midrigan and Xu, 2015). Finally, it has recently been
shown by Gaubert and Itskhoki (2020) that these markups are a key determinant
of the granular origin – i.e. linked to the activity of big exporters – of
comparative advantages, or in other words, they may be a determinant of trade competitiveness.

In
a recent paper (Auray and Eyquem, 2021), we introduce a dispersion of profit
margins by assuming strategic pricing viaBertrand-type competition in a
two-country model with endogenous variety effects and international trade along
the lines of Ghironi and Melitz (2005). Our aim is to understand the
interaction between these margins, firm productivity and entry-and-exit
phenomena in domestic and foreign markets. If there are distortions in the
allocation of resources, as is usually the case in these models, our corollary
objective is to study the implementation of optimal fiscal policy.

In
models with heterogeneous firms such as Ghironi and Melitz (2005), firms are
assumed to be heterogeneous in terms of individual productivity. The most
productive firms are more likely to enter markets, because they are better able
to pay fixed entry costs, whether in local or export markets. Moreover, because
these firms are more efficient, their production costs are lower, which allows
them to capture larger market shares. These effects, which seem relatively
intuitive, have already been widely validated empirically.

In
general, the introduction of strategic pricing behaviour allows firms with
larger market shares to benefit from greater price-setting power, which leads
them to charge higher markups – it being understood that the resulting selling
prices may be lower than those of their competitors. A growing literature on
international trade emphasises the importance of this kind of strategic
behaviour and the resulting dispersion of markups for determining patterns of
trade openness and their sectoral composition (see, for example, Bernard,
Eaton, Jensen and Kortum, 2003; Melitz and Ottaviano, 2008; Atkeson and
Burstein, 2008) but also for the magnitude of the welfare gains associated with
trade (Edmond, Midrigan and Xu, 2015). Indeed, in addition to the usual impact
of openness to trade, it could also reduce the adverse effects of the dispersion
of markups through the resulting increase in competition, thereby boosting its
positive effects.

First,
as expected, when fiscal policy is passive, Bertrand competition generates a
distribution of markups such that firms that are larger – hence the more
productive firms – offer lower prices, attract larger market shares and obtain
higher profit margins. Moreover, the mechanism for the selection of exporting
firms described by Melitz (2003) implies that these firms are more productive
and therefore charge higher markups. These results are intuitive and consistent
with the observed distribution of markups (see Holmes, Hsu, and Lee, 2014).

Second,
we characterize the optimal allocation of resources and show how it can be
implemented. The best possible equilibrium fully corrects for price distortions
and implies a zero dispersion of markups and a near zero level of markups. It
is implemented, as is often the case in this literature, by generous subsidies
that cancel out markups while preserving the incentive for firms to enter
domestic and export markets, i.e. by allowing them to cover the fixed costs of
entry. This first-order equilibrium can be achieved using a combination of subsidies
for a firm’s specific sales, a tax scheme on profits that differentiates between
non-exporting and exporting firms, and a specific labour tax.

In
a similar model where markups are assumed to be the same for all firms, the
best equilibrium is the same but, in contrast, much easier to implement through
a single policy instrument: a uniform and time-varying subsidy for all firms.

In
both cases, the gains associated with such policies are very large compared to the
laissez-faire case, representing a potential increase in household consumption
of around 15%. However, given the complexity of implementing a scheme with
heterogeneous markups and a cost to the public purse of over 20% of GDP –
implementation requires large amounts of subsidies, whether the markups are
heterogeneous or homogeneous – we consider second-order alternative policies,
where the number of policy instruments is limited and the government budget must
be balanced. We find that these restrictions significantly reduce the ability
of policy makers to cut the welfare losses associated with the laissez-faire
equilibrium, and that only one-third of the potential welfare gains can be
implemented in this case.

Third,
while the first-order allocations are independent of the degree of pricing
behaviour, we find that the welfare losses observed in the laissez-faire
equilibrium are lower when markups are heterogeneous and higher on average than
the markups observed in the absence of strategic pricing. While this may seem
surprising, the result can be rationalized by considering the effects of markup
dispersion on both the intensive markup – the
quantity produced per firm – and the extensive markup – the number of firms in
the markets. Indeed, Bertrand competition implies that the dispersion and the
average level of markups are positively related. Markup dispersion thus
increases the level of markups with two effects. On the one hand, all other
things being equal, higher markups reduce the quantity produced by each firm – the
intensive markup – and induce a misallocation of resources that generates
welfare losses. On the other hand, higher markups imply higher expected profits
for potential entrants, which stimulates entry and thus increases the number of
existing firms – the extensive markup. According to our model, the welfare
gains associated with the second effect dominate the welfare losses associated
with the first effect. The result therefore implies that the dispersion of markups
can generate welfare gains, at least when no other tax or industrial policy is
pursued.

Fourth,
while the previous results mainly focus on the implications of our model and
the associated optimal policies on average over time, we also study their
dynamic properties. Within the framework of passive (laissez-faire) fiscal
policies, when the economy experiences aggregate productivity shocks – technological,
for instance – the model behaves broadly like the Ghironi and Melitz (2005)
model. An original prediction of our model is that markups are globally
countercyclical while export markups are procyclical. The optimal policy
involves adjustments in tax rates in order to reverse this trend, to align all markups
over the business cycle and to make all markups procyclical. These results are
consistent with the findings of studies that focus on the optimal cyclical
behaviour of markups with heterogeneous firms in closed (Bilbiie, Ghironi and
Melitz, 2019) and open (Cacciatore and Ghironi, 2020) economy models. However, conditionally
on aggregate productivity shocks, the dispersion of markups has little effect
quantitatively compared to a similar model with homogeneous markups.

Finally,
in the spirit of Edmond, Midrigan and Xu (2015), we conducted a trade
liberalization experiment whereby the costs of trade gradually and permanently
decline to almost zero. We find that the long-run welfare gains are much larger
when the policy implemented is optimal. On the other hand, the laissez-faire
equilibrium indicates that short-run welfare gains are affected by markup
dispersion. Indeed, markup dispersion affects the dynamics of business creation
resulting from trade liberalization in a critical way. As in Edmond, Midrigan
and Xu (2015), markup dispersion reduces the long-run welfare gains from trade,
but for a different reason: it affects the dynamism of business creation and
reduces the number of firms in the long run. However, since in this case fewer
resources are invested in the short run to create new companies, consumption
increases more at the intensive markup in the short and medium run – less than
10 years. While the long-run welfare gains from trade integration vary from 12%
to 14.5%, depending on the calibration, the short-run welfare gains with
heterogeneous markups can be up to 3% larger than with homogeneous markups.

The
conclusions of this study lead to an approach to corporate profit margins that
is more nuanced than that usually found in the literature. Indeed, while the markups
and their dispersion do have negative effects on the economy, they also have an
important role to play in the phenomena of business entry and participation in
international markets. Our work is a complement to a strictly microeconomic
approach to industrial policy issues, which would conclude unequivocally that
the market power at the origin of these markups is harmful. As such, in the
manner of Schumpeter, this calls for a more balanced view of the role of company
markups in modern economies, which would show a tension between distortions of
competition and incentives to business creation.

Bibliographic references

Auray Stéphane and Aurélien Eyquem, 2021, “The
dispersion of Mark-ups in an Open Economy”.

Autor David, David Dorn, Lawrence F. Katz,
Christina Patterson and John Van Reenen, 2017, “Concentrating on the Fall of
the Labor Share”, American Economic Review, 107 (5):180-185.

Baqaee David Rezza and Emmanuel Farhi, 2020, “Productivity
and Misallocation in General Equilibrium”, The Quarterly Journal of Economics, 135 (1):105-163.

Berman N., P. Martin and T. Mayer, 2012, “How do
Different Exporters React to Exchange Rate Changes?”, Quarterly Journal of Economics, 127 (1):437-492.

Bernard Andrew B., Jonathan Eaton, J. Bradford
Jensen and Samuel Kortum, 2003, “Plants and Productivity in International Trade”,
American
Economic Review, 93
(4):1268-1290.

Bilbiie Florin O., Fabio Ghironi and Marc J.
Melitz, 2008, “Monetary Policy and Business Cycles with Endogenous Entry and
Product Variety”, In NBER Macroeconomics Annual 2007, Volume 22, NBER Chapters. National Bureau of
Economic Research, Inc, 299-353.

Bilbiie Florin O., Fabio Ghironi and Marc J.
Melitz, 2019, “Monopoly Power and Endogenous Product Variety: Distortions and
Remedies”, American
Economic Journal: Macroeconomics,
11 (4):140-174.

Cacciatore Matteo, Giuseppe Fiori and Fabio
Ghironi, 2016, “Market Deregulation and Optimal Monetary Policy in a Monetary
Union”, Journal
of International Economics,
99 (C):120-137.

Cacciatore Matteo and Fabio Ghironi, 2020,
“Trade, Unemployment, and Monetary Policy”, NBER Working Paper, 27474.

Edmond Chris, Virgiliu Midrigan and Daniel Yi Xu,
2015, “Competition, Markups, and the Gains from International Trade”, American Economic Review, 105(10):3183-3221.

Etro Federico and Andrea Colciago, 2010,
“Endogenous Market Structure and the Business Cycle”, Economic Journal, 120(549):1201-1233.

Gabaix Xavier, 2011, “The Granular Origins of
Aggregate Fluctuations”, Econometrica, 79(3):733-772.

Gaubert Cecile and Oleg Itskhoki, 2020,
“Granular Comparative Advantage”, Journal of Political Economy (forthcoming).

Ghironi F. and M. J. Melitz, 2005, “International
Trade and Macroeconomic Dynamics with Heterogeneous Firms”, Quarterly Journal of Economics, 120(3):865-915.

Holmes Thomas J., Wen-Tai Hsu and Sanghoon Lee,
2014, “Allocative Efficiency, Mark-ups, and the Welfare Gains from Trade”, Journal of International Economics, 94(2):195-206.

Loecker Jan De, Jan Eeckhout and Gabriel Unger,
2020, “The Rise of Market Power and the Macroeconomic Implications
[“Econometric Tools for Analyzing Market Outcomes”]”, The Quarterly Journal of Economics, 135(2):561-644.

Melitz Marc J., 2003, “The Impact of Trade on
Intra-Industry Reallocations and Aggregate Industry Productivity”, Econometrica, 71(6):1695-1725.

Melitz Marc J. and Gianmarco I. P. Ottaviano, 2008,
“Market Size, Trade, and Productivity”, Review of Economic Studies, 75(1):295-316.

Restuccia Diego and Richard Rogerson, 2008, “Policy
Distortions and Aggregate Productivity with Heterogeneous Establishments”, Review of Economic Dynamics, 11(4):707-720.