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Firm Dynamics and Trade

Author

Listed:
  • George Alessandria

    (Department of Economics, University of Rochester, Rochester, New York 14627, USA)

  • Costas Arkolakis

    (Department of Economics, Yale University, New Haven, Connecticut 06511, USA)

  • Kim J. Ruhl

    (Department of Economics, University of Wisconsin–Madison, Madison, Wisconsin 53706, USA)

Abstract

We review the literature that studies the dynamics of firms in foreign markets, at both the intensive and extensive margins, and their aggregate implications. We first summarize a set of micro facts on exporter entry, expansion, contraction, and exit and several macro facts about the response of aggregate trade flows to trade-policy and business-cycle shocks. We then present the canonical model developed to account for these facts and discuss its connection to the empirical evidence. We show how three model features—future uncertain profits, an investment in market access, and high depreciation of that access upon exit—generate transition dynamics and long-run aggregate outcomes from a cut in tariffs. The model and its extensions contribute to our understanding of trade integration and the evolution of future trade barriers. We discuss the key challenges faced by the canonical model, its possible extensions, and applications of the framework to recent global events.

Suggested Citation

  • George Alessandria & Costas Arkolakis & Kim J. Ruhl, 2021. "Firm Dynamics and Trade," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 253-280, August.
    • Handle: RePEc:anr:reveco:v:13:y:2021:p:253-280
    DOI: 10.1146/annurev-economics-090919-025159
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    Cited by:

    1. Albornoz, Facundo & Calvo Pardo, Héctor F. & Corcos, Gregory & Ornelas, Emanuel, 2023. "Sequentially exporting products across countries," Journal of International Economics, Elsevier, vol. 142(C).
    2. Pisch, Frank & Berlingieri, Giuseppe, 2022. "Managing Export Complexity: The Role of Service Outsourcing," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 135680, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    3. Kazunobu Hayakawa & Nuttawut LAKSANAPANYAKUL & Toshiyuki Matsuura & Taiyo Yoshimi, 2024. "Export Dynamics and Invoicing Currency," Keio-IES Discussion Paper Series 2024-005, Institute for Economics Studies, Keio University.
    4. Francois de Soyres & Erik Frohm & Emily Highkin & Carter Mix, 2021. "Forward Looking Exporters," FEDS Notes 2021-10-06-1, Board of Governors of the Federal Reserve System (U.S.).
    5. James Tybout & David Jinkins & Daniel Yi Xu & Jonathan Eaton, 2016. "Two-sided Search in International Markets," 2016 Meeting Papers 973, Society for Economic Dynamics.
    6. David Kohn & Fernando Leibovici & Michal Szkup, 2019. "Financial Development and Trade Liberalization," 2019 Meeting Papers 1212, Society for Economic Dynamics.
    7. Paul Ilhak Ko, 2020. "Dissecting Trade and Business Cycle Co-movement," 2020 Papers pko1026, Job Market Papers.
    8. Gregory Corcos & Silviano Esteve-Pérez & Salvador Gil-Pareja & Yuanzhe Tang, "undated". "Firm-level export and import survival over the business cycle," Working Papers 2022-22, Center for Research in Economics and Statistics.
    9. David Kohn & Fernando Leibovici & Michal Szkup, 2023. "No Credit, No Gain: Trade Liberalization Dynamics, Production Inputs, And Financial Development," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(2), pages 809-836, May.
    10. Rigo, Davide, 2024. "The role of firm-to-firm relationships in exporter dynamics," LSE Research Online Documents on Economics 121135, London School of Economics and Political Science, LSE Library.
    11. Crinò, Rosario & Bonfiglioli, Alessandra & Gancia, Gino, 2021. "International Trade with Heterogeneous Firms: Theory and Evidence," CEPR Discussion Papers 16249, C.E.P.R. Discussion Papers.
    12. David Kohn & Fernando Leibovici & Michal Szkup, 2021. "Financial Frictions and International Trade," Working Papers 2021-009, Federal Reserve Bank of St. Louis.
    13. Yasmine Eissa & Chahir Zaki, 2023. "On GVC and innovation: the moderating role of policy," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 50(1), pages 49-71, March.

    More about this item

    Keywords

    trade liberalization; welfare; exports;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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