On the impact of competition on trade and firm location

We study how the level of trade costs and the intensity of competition interact to
explain the nature and intensity of trade within a given industry and the location of firms
across countries. As trade costs decrease from very high to very low values, the global
economy moves from autarky to two-way trade, through one-way trade from the larger
to the smaller region. By exploring the intensive and extensive margins of exports, we
investigate how the intensity of trade reacts to the degree of competitiveness. Furthermore,
when firms are free to change location, they flow from the small to the large country, and
the larger country is always a net exported on the manufactured good. Firms located in
the big country have a bigger size than those located in the small one. Under one-way
trade, the relocation of firms changes their attitude toward export.