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Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics

Author

Listed:
  • Andrew B. Bernard

    (Dartmouth College - Tuck School of Business)

  • J. Bradford Jensen

    (Peterson Institute for International Economics)

  • Peter K. Schott

    (Yale University, Yale School of Management)

Abstract

This paper examines the response of industries and firms to changes in trade costs. Several new firm-level models of international trade with heterogeneous firms predict that industry productivity will rise as trade costs fall due to the reallocation of activity across plants within an industry. Using disaggregated U.S. import data, we create a new measure of trade costs over time and industries. As the models predict, productivity growth is faster in industries with falling trade costs. We also find evidence supporting the major hypotheses of the heterogenous-firm models. Plants in industries with falling trade costs are more likely to die or become exporters. Existing exporters increase their shipments abroad. The results do not apply equally across all sectors but are strongest for industries most likely to be producing horizontally-differentiated tradeable goods.

Suggested Citation

  • Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2003. "Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics," Working Paper Series WP03-4, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp03-4
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Plant Deaths; Survival; Exit; Exports; Employment; Tariffs; Freight Costs; Transport Costs;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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