Firms in International Trade

Ana Carolina GamaFatoumata Diallo

Mohamed Kabakibi

TD – Commerce International

Firms in International Trade

Article: Firms in international trade

Autors: Bernard, A., Jensen, J.B., Redding S. and Schott P.

Year: 2007

Firms in International Trade

Literature review :

• Bernard, A., Jensen, J.B., Redding S. and Schott P. (2007), “Firms in international trade.”• Bernard, Andrew B., and J. Bradford Jensen (1995), “Exporters, Jobs, and Wages in U.S. Manufacturing: 1976-87.”• Helpman, Elhanan, and Paul Krugman (1985), “Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition and the International Economy.”And more…

Firms in International Trade

Methodology and Data :

• Database collected in the U.S. between 1992 and 2002.

1997 U.S. Census of Manufactures2000 Linked-Logitudinal Firm Trade Transaction Database (LFTTD)2002 U.S. Census of Manufactures

Firms in International Trade

Motivation

• “Economists usually emphasize comparative advantage, increasing returns to scale, and consumer love of variety, but pay relatively little attention to the firms that actually drive trade flows. Yet engaging in international trade is an exceedingly rare activity: of the 5.5 million firms operating in the United States in 2000, just 4 percent were exporters.”

• Self selection: Exporters have a productivity advantage before they start exporting.

Firms in International Trade

Sources: Data are from the 2002 U.S. Census of Manufactures

Exporting By U.S. Manufacturing Firms, 2002

• NAICS – North American Industry Classification System• Firm Exporting is Relatively Rare• Confirmation of the Old Theory (comparative advantage) and it gives bases to the New

Theory (present of all industries)

Firms in International TradeExporter Premia in U.S. Manufacturing, 2002

Sources: Data are for 2002 and are from the U.S. Census of Manufactures

• Dependent Variables: employment, shipments and value-added per worker.• Explanatory Variable: is a dummy variable indicating if it is exporter or no-exporter.

Firms in International Trade

New Transaction-level Data on Firms and Trade:

• Distinguish Between:Extensive Margins and Intensive Margins

•Trade is concentrated across firms:• 2000 – 1% of trading firms by value accounted for over 80% of value of total trade while top 10% of trading firms by value accounted for over 95% of value of total trade

Firms in International Trade

New Transaction-level Data on Firms and Trade:

•2 explanations :•1st – extremely unequal distribution of productivity across firms•2nd – high elasticity of substitution between firms varieties

• Alternative explanations:• A – Economies of Scale• B – Sunk cost specific to individual destination/product and if destinations vary in terms of their profitability

Distribution of Exporters and Export Value by No of Products and Export Destinations, 2000

Sources: Data are from the 2000 Linked-Longitudinal Firm Trade Transaction Database (LFTTD).

• Comparing exporter and non-exporter firms, it is possible to conclude that exporter firms are more productives and by this reason they export more.

• If it is added industry fixed effects to the explanatory variables, the results increases the differences between them

Sources: Data are for 1997 and are from the U.S. Census of Manufactures.

Firms in International TradeNew Transaction-level Data on Firms and Trade:Gravity Reconsidered

•Effects of distance on bilateral trade: does it operate through the extensive margin or the intensive margin ? Gravity model

The contribution of the number of firms exporting to the destination

Aggregate value of the U.S. exports

The number of products exported to the destination

The average value of exports per product per firm

Results:• Trade is increasing in destination GDP and decreasing in distance• Aggregate trade relationships are hugely influenced by extensive margin both in

terms of number of destinations and number of exported products (in red)• Intensive margin is increasing in distance and decreasing in importer income (in

blue). One possible explanation: Differences in quality

Firms in International TradeNew Transaction-level Data on Firms and Trade:Importing and exporting

• Lack of datasets on firm imports. • Recently, information on imports became available.•Across industries, 41% of exporting firms also import, while 79% of importers also export.

However, firm importing is still relatively rarer than firm exporting.

Results:• Exporting firms have 150% more employment that non exporting firms,

and importing firms have 140% more employment than non importing firms (175% more if the firm both imports and exports).

• Exporters and importers share the same attributes: - Both bigger - Both more productive

Offshoring ? - Pay higher wages - More skill-and-capital intensive that non exporters and non importers

Results (similar to earlier)• Trade is increasing in destination GDP and decreasing in distance.• Aggregate trade relationships are hugely influenced by extensive margin both in

terms of number of destinations and number of imported products (in red).• Intensive margin is increasing in distance and decreasing in importer income (in

blue). One possible explanation: Differences in quality.

Firms in International Trade

Conclusion