ABSTRACT
This chapter discusses firm heterogeneity and trade by showing that only a small fraction of all firms engage in trading activities that this share varies per sector based on comparative advantage and is firm-specific. It describes the new data on trade in value-added, which tries to estimate the extent to which a country's gross export flows incorporate domestically produced value-added and imported foreign value-added. The chapter analyses value-added trade linkages at the global level by identifying backward linkages, forward linkages, direct domestic content and indirect domestic content. It shows the consequences for the participation in global supply chains. The chapter provides an overview of the 'core' model of geographical economics, which gives rise to a core-periphery structure of the world economy as spatial interaction costs fall. It concludes by illustrating the consequences of developments for the structure of global regional trade flows.
