Trade Engagement and Producer Performance
Models of international trade increasingly emphasize the trade decisions of individual firms or plants. These decisions take two different forms: where to source inputs (import decisions) and where to sell output (export decisions). In the literature, these decisions are rarely considered jointly. This paper analyzes the extent to which there are complementarities between importing and exporting and quantifies the effects of trade status on producer performance. We develop an analytically tractable general equilibrium model of firms’ trade decisions that incorporates both decisions simultaneously. Our model quantitatively captures many important features of plant-level manufacturing data, including the size distribution and the large performance advantage associated with trade engagement.
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