Productivity and International Trade - firm-level evidence from a small open economy

This paper presents a comprehensive description and analysis of the international trading activities of firms based on novel detailed Swedish data. As a small open economy with a limited domestic market, Sweden constitutes an interesting contrast to existing evidence. We show that much of the stylized facts from large countries (specifically the US) about firms’ participation in international trade also pertain to a small open economy. We provide robust evidence of selection operating from market to market which is consistent with that low productive firms are confined to markets with low productivity thresholds. We further show that selection also applies to number of products traded. Both export and import productivity premiums increase in number of markets and number of products traded, respectively. There is a substantial heterogeneity among exporters and importers in terms of the number of markets they trade with and in terms of the number of products they trade.