This paper surveys the main ingredients and results of heterogeneous firms trade policy literature that has been developing since the early 2000s. First, I present the stylized facts regarding firm heterogeneity, firmlevel markups, and multinational production’s global structure. I then survey the trade policy papers that build on the workhorse model of firm heterogeneity. Third, I summarize the recent development of theoretical approaches of modeling the firm-level markups and its trade policy implication. Fourth, I discuss the theoretical frameworks that incorporate multinational production into heterogeneous firms’ framework and their trade policy implication. Finally, I discuss directions for future research and offer suggestions for further readings.
Keywords: Trade policy, Firm heterogeneity, Variable markups, Multinational production.
JEL codes: F12, F13, F23, F60.
The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.
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