This paper develops a dynamic industry model with heterogeneous firms to analyze the intra-industry effects of international trade. The model shows how the exposure to trade will induce only the more productive firms to enter the export market (while some less productive firms continue to produce only for the domestic market) and will simultaneously force the least productive firms to exit. It then shows how further increases in the industry's exposure to trade lead to additional inter-firm reallocations towards more productive firms. The paper also shows how the aggregate industry productivity growth generated by the reallocations contributes to a welfare gain, thus highlighting a benefit from trade that has not been examined theoretically before. The paper adapts Hopenhayn's (1992a) dynamic industry model to monopolistic competition in a general equilibrium setting. In so doing, the paper provides an extension of Krugman's (1980) trade model that incorporates firm level productivity differences. Firms with different productivity levels coexist in an industry because each firm faces initial uncertainty concerning its productivity before making an irreversible investment to enter the industry. Entry into the export market is also costly, but the firm's decision to export occurs after it gains knowledge of its productivity.

/pdf/the-impact-of-trade-on-intra-industry-reallocations-and-14vfgb21xo.pdf

The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity

This Paper builds a dynamic industry model with heterogeneous firms that explains why international trade induces reallocations of resources among firms in an industry. The Paper shows how the exposure to trade will induce only the more productive firms to enter the export market (while some less productive firms continue to produce only for the domestic market) and will simultaneously force the least productive firms to exit. It then shows how further increases in the industry's exposure to trade lead to additional inter-firm reallocations towards more productive firms. These phenomena have been empirically documented but cannot be explained by current general equilibrium trade models, because they rely on a representative firm framework. The Paper also shows how the aggregate industry productivity growth generated by the reallocations contributes to a welfare gain, thus highlighting a benefit from trade that has not been examined theoretically before. The Paper adapts Hopenhayn's (1992a) dynamic industry model to monopolistic competition in a general equilibrium setting. In so doing, the Paper provides an extension of Krugman's (1980) trade model that incorporates firm level productivity differences. Firms with different productivity levels coexist in an industry because each firm faces initial uncertainty concerning its productivity before making an irreversible investment to enter the industry. Entry into the export market is also costly, but the firm's decision to export occurs after it gains knowledge of its productivity.

https://papers.ssrn.com/sol3/Delivery.cfm/DP3381.pdf?abstractid=317300&mirid=1

A growing body of empirical work has documented the superior performance characteristics" of exporting plants and firms relative to non-exporters. Employment, shipments and capital intensity are all higher at exporters at any given moment. This paper asks whether good" firms become exporters or whether exporting improves firm performance. The evidence is quite" clear on one point: good firms become exporters, both growth rates and levels of success measures" are higher ex-ante for exporters. The benefits of exporting for the firm are less clear. Employment" growth and the probability of survival are both higher for exporters; however growth is not superior, particularly over longer horizons.

Exceptional Exporter Performance: Cause, Effect, or Both?

Do countries with lower policy-induced barriers to international trade grow faster, once other relevant country characteristics are controlled for? There exists a large empirical literature providing an affirmative answer to this question. We argue that methodological problems with the empirical strategies employed in this literature leave the results open to diverse interpretations. In many cases, the indicators of openness used by researchers are poor measures of trade barriers or are highly correlated with other sources of bad economic performance. In other cases, the methods used to ascertain the link between trade policy and growth have serious shortcomings. Papers that we review include those by Dollar (1992), Ben-David (1993), Sachs and Warner (1995), Edwards (1998), and Frankel and Romer (1999). We find little evidence that open trade policies-in the sense of lower tariff and nontariff barriers to trade-are significantly associated with economic growth.

Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence

https://www.nber.org/system/files/working_papers/w6272/w6272.pdf

Exceptional exporter performance : cause, effect, or both?

Widespread empirical evidence indicates that exporting producers have higher productivity than non-exporters, although the reasons why are unclear. Some analysts argue that exporters acquire knowledge of new production methods, inputs, and product designs from their international contacts, and with this knowledge they achieve higher productivity than their more insulated domestic counterparts. Others argue that the higher productivity of exporters reflects the self-selection of more efficient producers into a highly competitive export market. This article analyzes the link between a producer's total factor productivity and its decision to participate in the export market, using manufacturing data from the Republic of Korea and Taiwan (China). Differences are found between these two economies in the importance of selection and learning. In Taiwan (China) transitions of plants into and out of the export market reflect systematic variations in productivity as predicted by self-selection models. In Korea there are no significant changes in productivity following entry or exit from the export market that are consistent with learning from exporting. A comparison of the two economies suggests that in Korea factors other than production efficiency are more prominent determinants of the export decision.

/pdf/productivity-and-turnover-in-the-export-market-micro-level-2t18eeep97.pdf

Productivity and Turnover in the Export Market: Micro-level Evidence from the Republic of Korea and Taiwan (China)

This paper estimates a dynamic structural model of a producer's decision to invest in R&D and export, allowing both choices to endogenously affect the future path of productivity Using plant-level data for the Taiwanese electronics industry, both activities are found to have a positive effect on the plant's future productivity This in turn drives more plants to self-select into both activities, contributing to further productivity gains Simulations of an expansion of the export market are shown to increase both exporting and R&D investment and generate a gradual within-plant productivity improvement (JEL D24, F14, G31, L63, O31, O33)

/pdf/r-d-investment-exporting-and-productivity-dynamics-3x87bfyi3y.pdf

R&D Investment, Exporting, and Productivity Dynamics

Productivity and the export market: A firm-level analysis

Firm-level evidence on productivity differentials and turnover in Taiwanese manufacturing

probit model that recognises the interdependence of the decisions. The effect of these investments on the firm’s future producti vity trajectory is then modelled while controlling for the selection bias introduced by endogenous firm

Bee Yan Aw

Papers

Productivity and Turnover in the Export Market: Micro-level Evidence from the Republic of Korea and Taiwan (China)

R&D Investment, Exporting, and Productivity Dynamics

Productivity and the export market: A firm-level analysis

Firm-level evidence on productivity differentials and turnover in Taiwanese manufacturing

Export Market Participation, Investments in R&D and Worker Training, and the Evolution of Firm Productivity