Asymmetric Monotone Comparative Statics for the Industry Compositions

Within a standard model of international trade with heterogenous firms and two asymmetric countries, we derive sufficient conditions for monotone comparative statics (MCS) for the industry composition. This model outcome is defined as first‐order stochastic dominance shifts in the equilibrium distributions of all activities across active firms. MCS for the industry composition occurs in a country that experiences a decline in its costs of serving the foreign market and meanwhile experiences an increase in its level of competition. In the other country, the industry‐level implications are exactly opposite. These clear industry‐level results hold while firms respond asymmetrically to the trade shock.