their behaviors in light of trade shocks. Some contributions do so. For example, Artuc et al. (2010) presented a structural empirical model of labor mobility costs, which focuses on workers’ choices of employment opportunities across industries and utilizes data from the United States to estimate those costs. A subsequent extension by Artuc and McClaren (2010) provided similar estimates for Turkey. With a different empirical modeling approach, Ebenstein et al. (2009) argue that labor mobility across industries but within occupations is significant in U.S. data, and ignoring such mobility can bias econometric estimates of the effect of trade reforms on wages within industries. Hence it seems that any modern framework to help understand how trade affects IG should at least consider worker mobility and employment choices.

Similarly, just like the literature on trade and employment is concerned about workers’ mobility, the well established literature on rural household behavior has for a long time considered household consumption and income-source decisions as fundamental for understanding the effects of agricultural prices on household welfare (see, e.g., Barnum and Squire 1979; Deaton 1989; Ravallion 1990, among others). Consequently, this note proposes the household and firm choice models as the basic analytical frameworks to be applied for clarifying the links between trade and IG. This dual approach, with emphases on workers and firms is consistent with the IG definition proposed by Ianchovichina and Lundstrom (2009).

In a nutshell, international integration can promote IG when workers and firms are able to self-select into growing economic activities and when firms can adopt superior foreign technologies and knowhow. That is, international trade offers opportunities for workers and firms, but their existing capabilities and the policy environment help determine the extent and distribution of such benefits.

The rest of this note is organized as follows. Section II covers the analytical framework from the viewpoint of households and individual workers. It covers direct, first-order impacts of trade shocks on household welfare, second order or behavioral impacts, and finishes with a discussion of important policy issues, namely the role of adjustment costs, skills and gender. In the process it also discusses data than can be used to empirically implement the framework. Section III provides the analysis of firm behavior. It begins with a discussion of first order effects of trade-driven price changes on profits, and then discusses how different types of firms distinguished by the extent to which they are integrated into the global economy via trade in final and intermediate goods and foreign ownership would be affected through second-order, productivity and changes in output structure. Mimicking the sections on households and workers, the discussion of firm profits includes a cursory evaluation of relevant data that is readily available to busy public policy specialists. Section IV concludes.

# **II. Trade and Inclusive Growth: Households**

Although the framework for tracing the effects of trade shocks on household welfare is credited to the literature on rural household behavior, it has broader applications that go beyond rural settings. In fact, the most basic setup was also used by Winters et al. (2004) in their review of the literature on trade and poverty. The starting point is a household with a given consumption basket and various sources of income. The so-called first order effects of a trade shock can be seen as a price change that affect some 3