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The Impact of Trade on Organization and Productivity

  • Lorenzo Caliendo
  • Esteban Rossi-Hansberg

A firm's productivity depends on how production is organized given the level of demand for its product. To capture this mechanism, we develop a theory of an economy where firms with heterogeneous demands use labor and knowledge to produce. Entrepreneurs decide the number of layers of management and the knowledge and span of control of each agent. As a result, in the theory, heterogeneity in demand leads to heterogeneity in productivity and other firms' outcomes. We use the theory to analyze the impact of international trade on organization and calibrate the model to the U.S. economy. Our results indicate that, as a result of a bilateral trade liberalization, firms that export will increase the number of layers of management and will decentralize decisions. The new organization of the average exporter results in higher productivity, although the responses of productivity are heterogeneous across these firms. In contrast, non-exporters reduce their number of layers, decentralization, and, on average, their productivity. The marginal exporter increases its productivity by about 1% and its revenue productivity by about 1.8%.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17308.

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Date of creation: Aug 2011
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Publication status: published as Lorenzo Caliendo & Esteban Rossi-Hansberg, 2012. "The Impact of Trade on Organization and Productivity," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1393-1467.
Handle: RePEc:nbr:nberwo:17308
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  1. Rossi-Hansberg, Esteban & Garicano, Luis & Antras, Pol, 2006. "Offshoring in a Knowledge Economy," Scholarly Articles 3196323, Harvard University Department of Economics.
  2. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2012. "Market Size, Competition, and the Product Mix of Exporters," CEP Discussion Papers dp1146, Centre for Economic Performance, LSE.
  3. Albert Park & Dean Yang & Xinzheng Shi & Yuan Jiang, 2009. "Exporting and Firm Performance: Chinese Exporters and the Asian Financial Crisis," NBER Working Papers 14632, National Bureau of Economic Research, Inc.
  4. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 865-915.
  5. De Loecker, Jan, 2007. "Do exports generate higher productivity? Evidence from Slovenia," Journal of International Economics, Elsevier, vol. 73(1), pages 69-98, September.
  6. Bloom, Nicholas & Garicano, Luis & Sadun, Raffaella & Van Reenen, John, 2013. "The distinct effects of Information Technology and Communication Technology on firm organization," CEPR Discussion Papers 9762, C.E.P.R. Discussion Papers.
  7. Arnaud Costinot & Andres Rodriguez-Clare & Costas Arkolakis, 2010. "New Trade Models, Same Old Gains?," 2010 Meeting Papers 433, Society for Economic Dynamics.
  8. Esteban Rossi-Hansberg & Luis Garicano, 2008. "Organizing Growth," 2008 Meeting Papers 247, Society for Economic Dynamics.
  9. Marin, Dalia & Verdier, Thierry, 2007. "Competing in Organizations: Firm Heterogeneity and International Trade," CEPR Discussion Papers 6342, C.E.P.R. Discussion Papers.
  10. Guadalupe, Maria & Wulf, Julie, 2009. "The Flattening Firm and Product Market Competition," CEPR Discussion Papers 7253, C.E.P.R. Discussion Papers.
  11. 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, Oxford University Press, vol. 113(3), pages 903-947.
  12. Jan De Loecker, 2011. "Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity," Econometrica, Econometric Society, vol. 79(5), pages 1407-1451, 09.
  13. 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.
  14. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organizing Offshoring: Middle Managers and Communication Costs," NBER Working Papers 12196, National Bureau of Economic Research, Inc.
  15. Luis Garicano & Esteban Rossi-Hansberg, 2004. "Inequality and the Organization of Knowledge," American Economic Review, American Economic Association, vol. 94(2), pages 197-202, May.
  16. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-level Productivity…For Some Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1051-1099.
  17. Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organization and Inequality in a Knowledge Economy," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1383-1435.
  18. Alla Lileeva & Daniel Trefler, 2007. "Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants," NBER Working Papers 13297, National Bureau of Economic Research, Inc.
  19. Isgut, Alberto & Fernandes, Ana, 2007. "Learning-by-Exporting Effects: Are They for Real?," MPRA Paper 3121, University Library of Munich, Germany.
  20. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
  21. Mary Hallward-Driemeier & Giuseppe Iarossi & Kenneth L. Sokoloff, 2002. "Exports and Manufacturing Productivity in East Asia: A Comparative Analysis with Firm-Level Data," NBER Working Papers 8894, National Bureau of Economic Research, Inc.
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