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Productivity and Firm Selection: Intra- vs International Trade

Author

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  • G. Corcos
  • M. Del Gatto
  • G. Mion
  • GIP. Ottaviano

Abstract

Recent theoretical models predict gains from international trade coming from intra-industry reallocations, due to a firm selection effect. In this paper we answer two related questions. First, what is the magnitude of this selection effect, and how does it compare to that of intra-national trade? Second, would the removal of 'behind-the-border' trade frictions between integrated EU countries lead to large productivity gains? To answer these questions, we extend and calibrate the Melitz and Ottaviano (2005) model on productivity and trade data for European economies in 2000, and simulate counterfactual trade liberalization scenarios. We consider 11 EU countries and a total of 31 economies, including 21 French regions. Our first result is that, in the French case, international trade has a sizeable impact on aggregate productivity, but smaller than that of intra-national trade. Second, substantial productivity gains (around 20%) can be expected from 'behind-the-border' integration. In both experiments, we predict the corresponding variations in average prices, markups, quantities and profits. We show that the model fits sales and exports data reasonably well, and we perform a number of robustness checks. We also suggest some explanations for the substantial cross-economy and cross-industry variations in our estimates of productivity gains, highlighting the importance of accessibility and competitiveness.

Suggested Citation

  • G. Corcos & M. Del Gatto & G. Mion & GIP. Ottaviano, 2007. "Productivity and Firm Selection: Intra- vs International Trade," Working Paper CRENoS 200706, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  • Handle: RePEc:cns:cnscwp:200706
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    Cited by:

    1. Gregory Corcos & Massimo Del Gatto & Giordano Mion & Gianmarco I.P. Ottaviano, 2012. "Productivity and Firm Selection: Quantifying the ‘New’ Gains from Trade," Economic Journal, Royal Economic Society, vol. 122(561), pages 754-798, June.
    2. M. Pitzalis & I. Sulis & M. Porcu, 2008. "Differences of Cultural Capital among Students in Transition to University. Some First Survey Evidences," Working Paper CRENoS 200805, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    3. Michele Imbruno, 2008. "EXPORTING, PRODUCTIVITY AND MARKET INTEGRATON: Italian manufacturing firms within the European context," Quaderni DSEMS 22-2008, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
    4. Gabriel Felbermayr & Benjamin Jung, 2011. "Sorting It Out: Technical Barriers to Trade and Industry Productivity," Open Economies Review, Springer, vol. 22(1), pages 93-117, February.
    5. Ufuk Akcigit, 2009. "Firm Size, Innovation Dynamics and Growth," 2009 Meeting Papers 1267, Society for Economic Dynamics.
    6. I. Sulis & M. Porcu, 2008. "Assessing the Effectiveness of a Stochastic Regression Imputation Method for Ordered Categorical Data," Working Paper CRENoS 200804, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    7. Petrović, Predrag & Filipović, Sanja & Radovanović, Mirjana, 2018. "Underlying causal factors of the European Union energy intensity: Econometric evidence," Renewable and Sustainable Energy Reviews, Elsevier, vol. 89(C), pages 216-227.
    8. Lejour, Arjan & Rojas Romasgosa, Hugo & Rodriguez, Victor & Montalvo, Carvos & Van der Zee, Frans, 2009. "Trade costs, Openness and Productivity: Market Access at Home and Abroad," MPRA Paper 21214, University Library of Munich, Germany.
    9. Mimouni, Karim & Temimi, Akram, 2018. "What drives energy efficiency? New evidence from financial crises," Energy Policy, Elsevier, vol. 122(C), pages 332-348.
    10. Flora Bellone & Patrick Musso & Lionel Nesta & Frederic Warzynski, 2016. "International trade and firm-level markups when location and quality matter," Journal of Economic Geography, Oxford University Press, vol. 16(1), pages 67-91.
    11. Imbriani, Cesare & Morone, Piergiuseppe & Testa, Giuseppina, 2008. "Exporting quality: is it the right strategy for the Italian manufacturing sector?," MPRA Paper 13327, University Library of Munich, Germany.
    12. König, Michael & Lorenz, Jan & Zilibotti, Fabrizio, 2016. "Innovation vs. imitation and the evolution of productivity distributions," Theoretical Economics, Econometric Society, vol. 11(3), September.
    13. Sandström, Maria, 2020. "Intangible Capital, Markups and Pro fits," Working Paper Series 2020:4, Uppsala University, Department of Economics.
    14. G. Marletto, 2007. "Crossing The Alps: Three Transport Policy Options," Working Paper CRENoS 200712, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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    More about this item

    Keywords

    european integration; intra-national trade; firm-level data; firm selection; gains from trade; total factor productivity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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