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Firms in International Trade

  • Andrew Bernard
  • J. Bradford Jensen
  • Stephen Redding
  • Peter Schott

Standard models of international trade devote little attention to firms. Yet of the 5.5 million firms operating in the United States in 2000, just 4 percent engaged in exporting, and the top 10 percent of these exporting firms accounted for 96 percent of U.S. exports. Since the mid 1990s, a large number of empirical studies have provided a wealth of information about the important role that firms play in mediating countries’ imports and exports. This research, based on micro datasets that track countries’ production and trade at the firm level, demonstrates that trading firms differ substantially from firms that solely serve the domestic market. Across a wide range of countries and industries, exporters have been shown to be larger, more productive, more skill- and capital-intensive, and to pay higher wages than non-trading firms.2 Furthermore, these differences exist even before exporting begins. The ex ante “superiority” of exporters suggests self-selection: exporters are more productive, not as a result of exporting, but because only the most productive firms are able to overcome the costs of entering export markets. It is precisely this sort of microeconomic heterogeneity that grants firms the ability to influence macroeconomic outcomes. When trade policy barriers fall or transportation costs decline, high-productivity exporting firms survive and grow while lower-productivity non-exporting firms are more likely to fail. This reallocation of economic activity across firms raises aggregate productivity and provides a new source of welfare gains from trade. Confronting the challenges posed by the analysis of micro data has shifted the focus of the international trade field from countries and industries towards firms and products. We highlight these challenges with a detailed analysis of how trading firms differ from non-trading firms in the United States. We show how these differences serve as the foundation of a series of recent heterogeneous-firm models that offer new insights into the causes and consequences of international trade. We then introduce a new set of stylized facts that emerge from analysis of recently available U.S. customs data. These transaction-level trade data track all of the products imported and exported by the U.S. firms to all of its trading partners from 1992 to 2000. They show that the extensive margins of trade – that is, the number of products firms trade as well as the number of countries they trade with – are central to understanding the well-known role of distance in dampening aggregate trade flows. We conclude with suggestions for further theoretical and empirical research.

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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 07-14.

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Length: 30 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:cen:wpaper:07-14
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  1. Helpman, E., 1998. "The Structure of Foreign Trade," Papers 18-98, Tel Aviv.
  2. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
  3. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2011. "Multiproduct Firms and Trade Liberalization," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1271-1318.
  4. Volker Nocke & Stephen Yeaple, 2006. "Globalization and Endogenous Firm Scope," PIER Working Paper Archive 06-015, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  6. Andrew Bernard & Stephen Redding & Peter Schott, 2004. "Comparative advantage and heterogeneous firms," IFS Working Papers W04/24, Institute for Fiscal Studies.
  7. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
  8. Van Biesebroeck, Johannes, 2005. "Exporting raises productivity in sub-Saharan African manufacturing firms," Journal of International Economics, Elsevier, vol. 67(2), pages 373-391, December.
  9. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
  10. Bernard, Andrew B. & Jensen, J. Bradford & Schott, Peter K., 2006. "Survival of the best fit: Exposure to low-wage countries and the (uneven) growth of U.S. manufacturing plants," Journal of International Economics, Elsevier, vol. 68(1), pages 219-237, January.
  11. Andrew Bernard & Stephen Redding & Peter Schott, 2008. "Multi-Product Firms and Product Switching," Working Papers 08-24, Center for Economic Studies, U.S. Census Bureau.
  12. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning By Exporting Important? Micro-Dynamic Evidence From Colombia, Mexico, And Morocco," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 903-947, August.
  13. Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 188-217.
  14. Daniel Trefler, 2001. "The Long and Short of the Canada-U.S. Free Trade Agreement," NBER Working Papers 8293, National Bureau of Economic Research, Inc.
  15. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2001. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," NBER Working Papers 8629, National Bureau of Economic Research, Inc.
  16. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  17. Eaton, Jonathan & Kortum, Samuel S & Kramarz, Francis, 2009. "An Anatomy of International Trade: Evidence from French Firms," CEPR Discussion Papers 7111, C.E.P.R. Discussion Papers.
  18. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  19. 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.
  20. repec:oup:restud:v:69:y:2002:i:1:p:245-76 is not listed on IDEAS
  21. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  22. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
  23. Russell Hillberry & David Hummels, 2005. "Trade Responses to Geographic Frictions: A Decomposition Using Micro-Data," NBER Working Papers 11339, National Bureau of Economic Research, Inc.
  24. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
  25. Andrew B. Bernard & J. Bradford Jensen, 2006. "Firm Structure, Multinationals, and Manufacturing Plant Deaths," Working Paper Series WP06-7, Peterson Institute for International Economics.
  26. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.
  27. repec:rus:hseeco:121669 is not listed on IDEAS
  28. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
  29. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  30. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  31. repec:rus:hseeco:122439 is not listed on IDEAS
  32. Pavcnik, Nina, 2002. "Trade Liberalization, Exit, and Productivity Improvement: Evidence from Chilean Plants," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 245-76, January.
  33. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
  34. Bernard, Andrew B. & Jensen, J. Bradford & Schott, Peter K., 2006. "Trade costs, firms and productivity," Journal of Monetary Economics, Elsevier, vol. 53(5), pages 917-937, July.
  35. repec:oup:qjecon:v:123:y:2008:i:2:p:441-487 is not listed on IDEAS
  36. Roberto Alvarez & Ricardo López, 2005. "Exporting and performance: evidence from Chilean plants," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1384-1400, November.
  37. repec:oup:qjecon:v:113:y:1998:i:3:p:903-947 is not listed on IDEAS
  38. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
  39. repec:oup:qjecon:v:119:y:2004:i:2:p:646-677 is not listed on IDEAS
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