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An Anatomy of International Trade: Evidence from French Firms

  • Jonathan Eaton
  • Samuel Kortum

Data on the individual export destinations of French firms shed light on the nature of entry barriers to national markets. The data reveal some striking regularities: (1) Looking across des tinations, the relationship between market size, French market share, and the number of French firms selling there is very tight, with the number of participants rising almost in proportion with respect to market share and with an elasticity of about two-thirds with respect to market size. (2) Looking across firms, most exporters sell to very few markets while a small number sell almost everywhere. Firms that export more widely sell much more within France and have higher value-added per worker. We show that a simple Ricardian model of export behavior with Cournot competition and a fixed cost of entry, calibrated to data on trade shares around the world, can explain these features. A relatively low fixed cost implies a di¤erence in the number of goods supplied to the largest and smallest markets of a factor of nearly 500. But with our assumption about the elasticity of substitution across commodities and our model's implication that lowest cost suppliers are verrepresented in the smallest markets, the implied welfare advantage is only 1.5

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 802.

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Date of creation: 2004
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Handle: RePEc:red:sed004:802
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  1. Xavier Gabaix & Rustam Ibragimov, 2011. "Rank - 1 / 2: A Simple Way to Improve the OLS Estimation of Tail Exponents," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(1), pages 24-39, January.
  2. Bee Yan Aw & Sukkyun Chung & Mark J. Roberts, 1998. "Productivity and the Decision to Export: Micro Evidence from Taiwan and South Korea," NBER Working Papers 6558, National Bureau of Economic Research, Inc.
  3. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  4. Biscourp, Pierre & Kramarz, Francis, 2007. "Employment, skill structure and international trade: Firm-level evidence for France," Journal of International Economics, Elsevier, vol. 72(1), pages 22-51, May.
  5. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  6. Goffe, William L. & Ferrier, Gary D. & Rogers, John, 1994. "Global optimization of statistical functions with simulated annealing," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 65-99.
  7. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting trade: firms, industries, and export destinations," Staff Report 332, Federal Reserve Bank of Minneapolis.
  8. Horowitz, Joel L., 2001. "The Bootstrap," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 52, pages 3159-3228 Elsevier.
  9. 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.
  10. Fernando Alvarez & Robert E. Lucas, 2005. "General Equilibrium Analysis of the Eaton-Kortum Model of International Trade," NBER Working Papers 11764, National Bureau of Economic Research, Inc.
  11. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151 - 1199.
  12. Bernard, A., 1997. "Exceptional Exporter Performance: Cause, Effect, or Both?," Working papers 97-21, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
  14. Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1103-1144, 08.
  15. 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.
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