Organizers: Munisamy Gopinath

“Firms and International Trade”
December 3-5, 2006
St. Petersburg, Florida

Organizer: Munisamy Gopinath, Oregon State University

Firms in International Trade (pdf)
Andrew B. Bernard, J. Bradford Jensen, Stephen J. Redding and Peter K. Schott

Despite the fact that importing and exporting are extremely rare firm activities, economists generally devote little attention to the role of firms when discussing international trade. This paper summarizes key differences between trading and non-trading firms, demonstrates how these differences present a challenge to standard trade models and shows how recent “heterogeneous-firm” models of international trade address these challenges. We then make use of transaction-level U.S. trade data to introduce a number of new stylized facts about firms and trade. These facts reveal that the extensive margins of trade – that is, the number of products firms trade as well as the number of countries with which they trade – are central to understanding the well-known role of distance in dampening aggregate trade flows.

Firm Heterogeneity, Exporting, and Foreign Direct Investment (pdf)
David Greenaway and Richard Kneller

A new literature on firm heterogeneity and firm level globalisation strategies has developed rapidly over the last decade. New insights on why some firms export and others do not, why some firms fail to survive in export markets and why some choose to produce overseas rather than export have been generated. This paper provides a survey and evaluation of this literature. It reviews both new theories of the firm in an open economy context and the extensive microeconometric evidence base which has now developed. As well as highlighting the implications of this evidence base for policy, the evaluation also includes an assessment of how the research agenda may evolve in the future.

An Anatomy of International Trade: Evidence from French Firms (pdf)
Jonathan Eaton, Samuel Kortum, and Francis Kramarz

We develop an equilibrium model of worldwide competition across a range of goods. Our model encompasses Ricardian and monopolistic competition as special cases. We parameterize the model to gauge its ability to capture the export behavior of French
manufacturing firms.

Outsourcing, Productivity and Input Composition at the Plant Level (pdf)
Catherine J. Morrison Paul and Mahmut Yasar

Outsourcing or subcontracting is increasingly used by firms as a production alternative, which may enhance productive performance as well as affect input mix. In this paper we explore the relationships between outsourcing and productivity, input composition, and trade for Turkish textile and apparel manufacturing plants, by empirically implementing a flexible production function model that recognizes domestic and foreign outsourcing and controls for simultaneity and selection bias. Our results suggest that domestic outsourcing through subcontracting inputs and foreign outsourcing through importing materials help plants increase their productivity, but that subcontracting output (contract receiving) is associated with lower productivity. In turn, input subcontracting is related to higher, and output subcontracting to lower, skilled relative to unskilled labor.

Knowledge-Capital, International Trade and Foreign Direct Investment: A Sectoral Analysis (pdf)
Keith E. Maskus and Yiting An

The knowledge-capital model of MNEs is now a widely adopted empirical approach to explaining the location and production decisions of global firms based on both horizontal and vertical motivations. We extend this model to sectoral data consisting of various manufacturing industries, including the food-processing sector. Empirical results from a dynamic panel data analysis indicate that relative skilled-labor and capital endowments have a positive and significant effect on foreign affiliate sales and exports across various industries. The results also show that horizontal (market-seeking) FDI is more prevalent in the food-processing sector in larger local markets, while assembly-oriented FDI for export is common in smaller local markets.