Comparative Advantage, Multi-product Firms and Trade Liberalisation PDF Download
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Author: Catherine Fuss
Publisher:
ISBN:
Category :
Languages : en
Pages : 62
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Author: Catherine Fuss
Publisher:
ISBN:
Category :
Languages : en
Pages : 62
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Author: Andrew B. Bernard
Publisher:
ISBN:
Category : Free trade
Languages : en
Pages : 66
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This paper develops a general equilibrium model of multi-product firms and analyzes their behavior during trade liberalization. Firm productivity in a given product is modeled as a combination of firm-level "ability" and firm-product-level "expertise", both of which are stochastic and unknown prior to the firm's payment of a sunk cost of entry. Higher firm-level ability raises a firm's productivity across all products, which induces a positive correlation between a firm's intensive (output per product) and extensive (number of products) margins. Trade liberalization fosters productivity growth within and across firms and in aggregate by inducing firms to shed marginally productive products and forcing the lowest-productivity firms to exit. Though exporters produce a smaller range of products after liberalization, they increase the share of products sold abroad as well as exports per product. All of these adjustments are shown to be relatively more pronounced in countries' comparative advantage industries.
Author: Johannes Boehm
Publisher:
ISBN:
Category : Comparative advantage (International trade)
Languages : en
Pages : 62
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Multiproduct firms dominate production, and their product turnover contributes substantially to aggregate growth. Theories propose that multiproduct firms grow by diversifying into products which need the same know-how or capabilities, but are less clear on what these capabilities are. Input-output tables show firms co-produce in industries that share intermediate inputs, suggesting input capabilities drive multiproduct production patterns. We provide evidence for this in Indian manufacturing: the similarity of a firm's input mix to an industry's input mix predicts entry into that industry. We identify the direction of causality from the removal of size-based entry barriers in input markets which made firms more likely to enter industries that were similar in input use to their initial input mix. We rationalize this finding with a model of industry choice and economies of scope to estimate the importance of input capabilities in determining comparative advantage. Complementarities driven by input capabilities make a firm on average 5% (and up to 15%) more likely to produce in an industry. Entry barriers in input markets constrained the comparative advantage of firms and were equivalent to a 10.5 percentage point tariff on inputs.
Author: Andrew B. Bernard
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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This paper examines how country, industry and firm characteristics interact in general equilibrium to determine nations' responses to trade liberalization. When firms possess heterogeneous productivity, countries differ in relative factor abundance and industries vary in factor intensity, falling trade costs induce reallocations of resources both within and across industries and countries. These reallocations generate substantial job turnover in all sectors, spur relatively more creative destruction in comparative advantage industries than comparative disadvantage industries, and magnify ex ante comparative advantage to create additional welfare gains from trade. The relative ascendance of high-productivity firms within industries boosts aggregate productivity and drives down consumer prices. In contrast with the neoclassical model, these price declines dampen and can even reverse the real wage losses of scarce factors as countries liberalize.
Author: Jan de Loecker
Publisher:
ISBN:
Category : Free trade
Languages : en
Pages : 46
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"In this paper I analyze the productivity gains from trade liberalization in the Belgian textile industry. So far, empirical research has established a strong relationship between opening up to trade and productivity, relying almost entirely on deflated sales to proxy for output in the production function. The latter implies that the resulting productivity estimates still capture price and demand shocks which are most likely to be correlated with the change in the operating environment, which invalidate the evaluation of the welfare implications. In order to get at the true productivity gains I propose a simple methodology to estimate a production function controlling for unobserved prices by introducing an explicit demand system. I combine a unique data set containing matched plant-level and product-level information with detailed product-level quota protection information to recover estimates for productivity as well as parameters of the demand side (markups). I find that when correcting for unobserved prices and demand shocks, the estimated productivity gains from relaxing protection are only half (from 6 to only 3 percent) of those obtained with standard techniques."--abstract.
Author: Iain Guthrie Osgood
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Which firms support trade liberalization and under what circumstances? The dominant approaches to trade politics ignore two key features of modern international commerce -- firm heterogeneity in export performance and intra-industry trade -- which jointly imply that industries will be divided over bilateral trade liberalization. This dissertation examines the impact of these features on the politics of trade, exploring the preferences of firms, the attitudes of industries, and the motivations of politicians, in turn. When products are differentiated, firms which do not export generally oppose trade liberalization even in industries at a comparative advantage relative to their foreign trade partners. Not all exporting firms will be supporters of trade, however. For example, the largest exporters may oppose trade liberalization in their export markets due to increased competition from compatriot firms. It is then argued that industries are most likely to be divided where product differentiation is high and differences in competitiveness between trade partners are muted. This pattern is documented empirically in a study of US industries' attitudes toward the US-Korea and US-Australia Free Trade Agreements. Finally, a complete political economic model of trade policy determination with heterogeneous firms is developed. The changing preferences of politicians across different economic and institutional settings are explored, and comparative statics identified which show how equilibrium tariffs change with key industry features.
Author: Van Pham
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Steven N. Durlauf
Publisher:
ISBN:
Category : Economic development
Languages : en
Pages : 70
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This paper explores the role of complementarities and coordination failure in economic growth. We analyze the evolution composed of a countable set of infinitely-lived heterogenous industries. Individual industries exhibit nonconvexities in production and are linked across time through localized technological complementarities. Each industry employs one of two production techniques. One technique is more efficient in using capital than the other, but requires the payment of a fixed capital cost. Both techniques exhibit technological complementarities in the sense that the productivity of capital invested in a technique is a function of the technique choices made by various industries the previous period. These complementarities, when strong enough, interact with incompleteness of markets to produce multiple Pareto-rankable equilibria in ling run economic activity. The equilibria have a simple probabilistic structure that demonstrates how localized coordination failures can affect the aggregate equilibrium. The model is capable of generating interesting aggregate dynamics as coordination problems become the source of aggregate volatility. Modifications of the model illustrate how leading sectors can cause a takeoff into high growth.
Author: Haichao Fan
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
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Book Description
In this paper, we incorporate Ricardian comparative advantage into a multi-sector version of Melitz's (2003) model to explain the pattern of international specialization and trade. The model is able to capture the existence of inter-industry trade and intra-industry trade in a single unified framework. Trade liberalization can lead to a "reverse-Melitz outcome" in the two-way trade sectors in which the country has the strongest comparative disadvantage, if the country is sufficiently large or its tariff reduction is sufficiently asymmetric compared with its trading partners. In this case, the productivity cutoff for survival is lowered while the exporting cutoff increases in the face of trade liberalization, leading to reductions in real wage in terms of these goods. This is because the inter-sectoral resource allocation (IRA) effect together with the unilateral liberalization (UL) effect dominate the Melitz selection effect in these sectors. Analyses of data of Chinese manufacturing sectors confirm our hypotheses. Our model can be extended to capture the effect that, in the comparative advantage sector, it is possible that firms that sell domestically have higher average productivity than firms that do not, as documented by Lu (2010) and others.
Author: Ana Fernandes
Publisher: International Monetary Fund
ISBN: 1484386175
Category : Business & Economics
Languages : en
Pages : 66
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The Melitz model highlights the importance of the extensive margin (the number of firms exporting) for trade flows. Using the World Bank’s Exporter Dynamics Database (EDD) featuring firm-level exports from 50 countries, we find that around 50 percent of variation in exports is along the extensive margin—a quantitative victory for the Melitz framework. The remaining 50 percent on the intensive margin (exports per exporting firm) contradicts a special case of Melitz with Pareto-distributed firm productivity, which has become a tractable benchmark. This benchmark model predicts that, conditional on the fixed costs of exporting, all variation in exports across trading partners should occur on the extensive margin. We find that moving from a Pareto to a lognormal distribution allows the Melitz model to match the role of the intensive margin in the EDD. We use likelihood methods and the EDD to estimate a generalized Melitz model with a joint lognormal distribution for firm-level productivity, fixed costs and demand shifters, and use “exact hat algebra” to quantify the effects of a decline in trade costs on trade flows and welfare in the estimated model. The welfare effects turn out to be quite close to those in the standard Melitz-Pareto model when we choose the Pareto shape parameter to fit the average trade elasticity implied by our estimated Melitz-lognormal model, although there are significant differences regarding the effects on trade flows.
