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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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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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Handle: RePEc:nbr:nberwo:17308

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References

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  1. Luis Garicano & Esteban Rossi-Hansberg, 2007. "Organizing Growth," NBER Working Papers 13705, National Bureau of Economic Research, Inc.
  2. Thierry Mayer & Marc J. Melitz & Gianmarco I.P. Ottaviano, 2011. "Market Size, Competition, and the Product Mix of Exporters," Development Working Papers 316, Centro Studi Luca d\'Agliano, University of Milano.
  3. Nicholas Bloom & Luis Garicano & Raffaella Sadun & John Van Reenen, 2009. "The distinct effects of Information Technology and Communication Technology on firm organization," NBER Working Papers 14975, National Bureau of Economic Research, Inc.
  4. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2005. "Offshoring in a Knowledge Economy," Discussion Papers 04-020, Stanford Institute for Economic Policy Research.
  5. Ghironi, Fabio & Melitz, Marc, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," Scholarly Articles 3228377, Harvard University Department of Economics.
  6. Albert Park & Dean Yang & Xinzheng Shi & Yuan Jiang, 2010. "Exporting and Firm Performance: Chinese Exporters and the Asian Financial Crisis," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 822-842, November.
  7. Bernard, Andrew B. & Redding, Stephen & Schott, Peter K., 2010. "Multiple-product firms and product switching," Open Access publications from London School of Economics and Political Science http://eprints.lse.ac.uk/, London School of Economics and Political Science.
  8. Guadalupe, Maria & Wulf, Julie, 2009. "The Flattening Firm and Product Market Competition," CEPR Discussion Papers 7253, C.E.P.R. Discussion Papers.
  9. Marin, Dalia & Verdier, Thierry, 2007. "Competing in Organizations: Firm Heterogeneity and International Trade," Discussion Papers in Economics 1933, University of Munich, Department of Economics.
  10. Pol Antras & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organizing Offshoring: Middle Managers and Communication Costs," 2006 Meeting Papers 133, Society for Economic Dynamics.
  11. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
  12. Jan De Loecker, 2011. "Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity," Econometrica, Econometric Society, vol. 79(5), pages 1407-1451, 09.
  13. Jan De Loecker, 2004. "Do Exports Generate Higher Productivity? Evidence from Slovenia," LICOS Discussion Papers 15104, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  14. Isgut, Alberto & Fernandes, Ana, 2007. "Learning-by-Exporting Effects: Are They for Real?," MPRA Paper 3121, University Library of Munich, Germany.
  15. Van Biesebroeck, Johannes, 2003. "Exporting raises productivity in Sub-Saharan African manufacturing plants," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/253801, Katholieke Universiteit Leuven.
  16. 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.
  17. Luis Garicano & Esteban Rossi-Hansberg, 2004. "Inequality and the Organization of Knowledge," American Economic Review, American Economic Association, vol. 94(2), pages 197-202, May.
  18. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
  19. Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organization and Inequality in a Knowledge Economy," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1383-1435, November.
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Citations

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Cited by:
  1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Working Papers 12-18, Center for Economic Studies, U.S. Census Bureau.
  2. Tåg, Joacim & Åstebro, Thomas & Thompson, Peter, 2013. "Hierarchies, the Small Firm Effect, and Entrepreneurship: Evidence from Swedish Microdata," Working Paper Series 954, Research Institute of Industrial Economics.
  3. Marin, Dalia & Rousova, Linda & Verdier, Thierry, 2013. "Do Multinationals Transplant their Business Model?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 398, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Lorenzo Caliendo & Ferdinando Monte & Esteban Rossi-Hansberg, 2012. "The Anatomy of French Production Hierarchies," Cowles Foundation Discussion Papers 1867, Cowles Foundation for Research in Economics, Yale University.
  5. Peter Arendorf Bache & Anders Laugesen, 2013. "Monotone Comparative Statics under Monopolistic Competition," Economics Working Papers 2013-10, School of Economics and Management, University of Aarhus.
  6. Marin, Dalia, 2012. "The Theory of the Firm goes Global," CEPR Discussion Papers 8880, C.E.P.R. Discussion Papers.
  7. Marc J. Melitz & Stephen J. Redding, 2012. "Heterogeneous Firms and Trade," CEP Discussion Papers dp1183, Centre for Economic Performance, LSE.
  8. Zhou, Jun, 2012. "Cartel Duration and Endogenous Private Monitoring and Communication: An Instrumental Variables Approach," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 369, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  9. Atif, Syed Muhammad, 2012. "Critical Review of 'A Simple Model of Firm Heterogeneity, International Trade and Wages'," MPRA Paper 42334, University Library of Munich, Germany.
  10. Carlo Altomonte & Armando Rungi, 2013. "Business Groups as Hierarchies of Firms: Determinants of Vertical Integration and Performance," Working Papers 2013.33, Fondazione Eni Enrico Mattei.

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