Globalisation and the Size Distribution of Firms

The implications of globalisation on the size distribution of firms and returns to individuals are studied in a general equilibrium model in which individuals with different managerial skills choose to become managers or workers. The return to managerial skill as a convex function of managerial skill arises naturally when firms engage in oligopolistic competition. Globalisation affects a firm's output and the price level. The change of the price level leads to the exit of less efficient firms and an increase of average firm size. Even though countries are identical and there is no fixed cost of production, globalisation can be beneficial to all countries. Impact of globalisation between countries with different endowments is also studied.