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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 given the level of demand for its product. To capture this mechanism, 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 and will decentralize decisions. The new organization of the average exporter results in higher productivity, although the responses of productivity are heterogeneous across these firms. In contrast, non-exporters reduce their number of layers, decentralization, and, on average, their productivity. The marginal exporter increases its productivity by about 1% and its revenue productivity by about 1.8%.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17308.

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Date of creation: Aug 2011
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Publication status: published as Lorenzo Caliendo & Esteban Rossi-Hansberg, 2012. "The Impact of Trade on Organization and Productivity," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1393-1467.
Handle: RePEc:nbr:nberwo:17308

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  1. Van Biesebroeck, Johannes, 2005. "Exporting raises productivity in sub-Saharan African manufacturing firms," Journal of International Economics, Elsevier, Elsevier, vol. 67(2), pages 373-391, December.
  2. 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.
  3. Albert Park & Dean Yang & Xinzheng Shi & Yuan Jiang, 2009. "Exporting and Firm Performance: Chinese Exporters and the Asian Financial Crisis," NBER Working Papers 14632, National Bureau of Economic Research, Inc.
  4. Pol Antras & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organizing Offshoring: Middle Managers and Communication Costs," 2006 Meeting Papers, Society for Economic Dynamics 133, Society for Economic Dynamics.
  5. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-Level Productivity... for Some Plants," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(3), pages 1051-1099, August.
  6. Ghironi, Fabio & Melitz, Marc, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," Scholarly Articles 3228377, Harvard University Department of Economics.
  7. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Offshoring in a Knowledge Economy," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 121(1), pages 31-77, 02.
  8. Marin, Dalia & Verdier, Thierry, 2007. "Competing in Organizations: Firm Heterogeneity and International Trade," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 207, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  9. 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.
  10. 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.
  11. 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.
  12. Garicano, Luis & Rossi-Hansberg, Esteban, 2012. "Organizing growth," Journal of Economic Theory, Elsevier, Elsevier, vol. 147(2), pages 623-656.
  13. 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.
  14. Isgut, Alberto & Fernandes, Ana, 2007. "Learning-by-Exporting Effects: Are They for Real?," MPRA Paper 3121, University Library of Munich, Germany.
  15. Jan De Loecker, 2007. "Product Differentiation, Multi-product Firms and Estimating the Impact of Trade Liberalization on Productivity," NBER Working Papers 13155, 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. Luis Garicano & Esteban Rossi-Hansberg, 2005. "Organization and Inequality in a Knowledge Economy," NBER Working Papers 11458, National Bureau of Economic Research, Inc.
  18. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
  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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