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Falling Trade Costs, Heterogeneous Firms and Industry Dynamics

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Author Info
Andrew B. Bernard
J. Bradford Jensen
Peter K. Schott

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Abstract

This paper examines the response of industries and firms to changes in trade costs. Several new firm-level models of international trade with heterogeneous firms predict that industry productivity will rise as trade costs fall due to the reallocation of activity across plants within an industry. Using disaggregated U.S. import data, we create a new measure of trade costs over time and industries. As the models predict, productivity growth is faster in industries with falling trade costs. We also find evidence supporting the major hypotheses of the heterogeneous-firm models. Plants in industries with falling trade costs are more likely to die or become exporters. Existing exporters increase their shipments abroad. The results do not apply equally across all sectors but are strongest for industries most likely to be producing horizontally-differentiated tradeable goods.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0585.

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Date of creation: Sep 2003
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Handle: RePEc:cep:cepdps:dp0585

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Keywords: Plant deaths survival exit exports employment tariffs freight costs transport costs

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F10 - International Economics - - Trade - - - General

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References listed on IDEAS
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  1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December. [Downloadable!] (restricted)
  2. Roberts, M. & Tybout, J., 1993. "An Empirical Model of Sunk Costs and the Decision to Export," Papers 4-93-3, Pennsylvania State - Department of Economics.
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  3. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-1), pages 1-118. [Downloadable!]
  4. Ben-David, Dan, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 653-79, August. [Downloadable!] (restricted)
  5. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-national Evidence," Electronic Working Papers 99-003, University of Maryland, Department of Economics. [Downloadable!]
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  7. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January. [Downloadable!] (restricted)
  8. J Bradford Jensen & Andrew B Bernard, 2001. "Why Some Firms Export," Working Papers 01-05, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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  9. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April. [Downloadable!] (restricted)
  10. Daniel Trefler, 2004. "The Long and Short of the Canada-U.S. Free Trade Agreement," American Economic Review, American Economic Association, vol. 94(4), pages 870-895, September. [Downloadable!] (restricted)
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  11. repec:bin:bpeajo:v:51:y:1995:i:1995-1:p:1-75 is not listed on IDEAS
  12. James R. Tybout, 2001. "Plant- and Firm-Level Evidence on "New" Trade Theories," NBER Working Papers 8418, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Andrew B. Bernard & J. Bradford Jensen, 2002. "The Deaths of Manufacturing Plants," NBER Working Papers 9026, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
  15. Aw, Bee Yan & Chung, Sukkyun & Roberts, Mark J, 2000. "Productivity and Turnover in the Export Market: Micro-level Evidence from the Republic of Korea and Taiwan (China)," World Bank Economic Review, Oxford University Press, vol. 14(1), pages 65-90, January.
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