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The Impact of Trade on Organization and Productivity

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  • Lorenzo Caliendo
  • Esteban Rossi-Hansberg

Abstract

A firm's productivity depends on how production is organized. To understand this relationship we develop a theory of an economy where firms with heterogeneous demands use labor and knowledge to produce. Entrepreneurs decide the number of layers of management and the knowledge and span of control of each agent. As a result, in the theory, heterogeneity in demand leads to heterogeneity in productivity and other firms' outcomes. We use the theory to analyze the impact of international trade on organization and calibrate the model to the U.S. economy. Our results indicate that, as a result of a bilateral trade liberalization, firms that export will increase the number of layers of management. The new organization of the average exporter results in higher productivity, although the responses of productivity are heterogeneous across these firms. Liberalizing trade from autarky to the level of openness in 2002 results in a 1% increase in productivity for the marginal exporter and a 1.8% increase in its revenue productivity. Endogenous organization increases the gains from trade by 41% relative to standard models. JEL Codes: D21, D24, F12, F13. Copyright 2012, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 127 (2012)
Issue (Month): 3 ()
Pages: 1393-1467

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Handle: RePEc:oup:qjecon:v:127:y:2012:i:3:p:1393-1467

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  1. Albert Park & Dean Yang & Xinzheng Shi & Yuan Jiang, 2006. "Exporting and Firm Performance: Chinese Exporters and the Asian Financial Crisis," Working Papers, Research Seminar in International Economics, University of Michigan 549, Research Seminar in International Economics, University of Michigan.
  2. Luis Garicano & Esteban Rossi-Hansberg, 2007. "Organizing Growth," NBER Working Papers 13705, National Bureau of Economic Research, Inc.
  3. Mayer, Thierry & Melitz, Marc J. & Ottaviano, Gianmarco I. P., 2014. "Market Size, Competition, and the Product Mix of Exporters," Scholarly Articles 12330897, Harvard University Department of Economics.
  4. Luis Garicano & Esteban Rossi-Hansberg, 2005. "Organization and Inequality in a Knowledge Economy," NBER Working Papers 11458, National Bureau of Economic Research, Inc.
  5. Mary Hallward-Driemeier & Giuseppe Iarossi & Kenneth L. Sokoloff, 2002. "Exports and Manufacturing Productivity in East Asia: A Comparative Analysis with Firm-Level Data," NBER Working Papers 8894, National Bureau of Economic Research, Inc.
  6. Pol Antras & Luis Garicano & Esteban Rossi-Hansberg, 2005. "Offshoring in a Knowledge Economy," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 2067, Harvard - Institute of Economic Research.
  7. Marin, Dalia & Verdier, Thierry, 2007. "Competing in Organizations: Firm Heterogeneity and International Trade," Discussion Papers in Economics, University of Munich, Department of Economics 1933, University of Munich, Department of Economics.
  8. Jan De Loecker, 2011. "Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity," Econometrica, Econometric Society, Econometric Society, vol. 79(5), pages 1407-1451, 09.
  9. Nick Bloom & Luis Garicano & Raffaella Sadun & John Van Reenen, 2009. "The distinct effects of information technology and communication technology on firm organization," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 25477, London School of Economics and Political Science, LSE Library.
  10. Jan De Loecker, 2004. "Do Exports Generate Higher Productivity? Evidence from Slovenia," LICOS Discussion Papers, LICOS - Centre for Institutions and Economic Performance, KU Leuven 15104, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  11. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
  12. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(3), pages 865-915, August.
  13. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organizing Offshoring: Middle Managers and Communication Costs," NBER Working Papers 12196, National Bureau of Economic Research, Inc.
  14. Alla Lileeva & Daniel Trefler, 2007. "Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants," NBER Working Papers 13297, National Bureau of Economic Research, Inc.
  15. Johannes Van Biesebroeck, 2003. "Exporting Raises Productivity in Sub-Saharan African Manufacturing Plants," NBER Working Papers 10020, National Bureau of Economic Research, Inc.
  16. Guadalupe, Maria & Wulf, Julie, 2009. "The Flattening Firm and Product Market Competition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7253, C.E.P.R. Discussion Papers.
  17. Isgut, Alberto & Fernandes, Ana, 2007. "Learning-by-Exporting Effects: Are They for Real?," MPRA Paper 3121, University Library of Munich, Germany.
  18. Luis Garicano & Esteban Rossi-Hansberg, 2004. "Inequality and the Organization of Knowledge," American Economic Review, American Economic Association, American Economic Association, vol. 94(2), pages 197-202, May.
  19. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(5), pages 874-904, October.
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