Explaining Export Performance through Inputs: Evidence from Aggregated Cross‐country Firm‐level Data

Which trade barrier related to intermediate inputs forms a greater burden on the export performance of firms in developing countries? Using aggregated cross‐country firm‐level data covering 43 mostly developing economies, this paper estimates the marginal importance of the impact of various intermediate input trade cost barriers, namely tariffs, non‐tariff barriers (NTBs) and services barriers, on firms' export behavior. In a cross‐sectoral setting, this paper takes the firm's export performance in goods as a central focus to study the effects of these different trade barriers through the exporting firm's choice of use of intermediate inputs. The results show that the most significant trade barriers on inputs that impede export performance in developing countries are mainly NTBs and restrictions of services.     

Industrial Policy As an Alternative to Trade Policy: Helping By Hurting*

Abstract Industrial policies that are essentially nonlinear taxes or subsidies on adjustment costs of domestic firms affect those firms' market power in oligopolistic international markets. These adjustment policies often can achieve a strategic purpose at lower cost to the government than linear trade or investment subsidies and are less likely to result in retaliation by other governments. Many governments, however, use adjustment policies for nonstrategic purposes without recognizing that they are reducing their firms' market power by subsidizing adjustment costs rather than taxing them.     

数字化转型助力企业外循环：影响机理和实现路径

在"十三五"的收官之年,基于当前和今后一个时期国内外环境变化,中央提出,要建立以国内大循环为主体,国际国内双循环相互促进的新发展格局,对开放水平和开放质量提出了更高要求.本文旨在考察数字化转型是否有助于促进企业外循环,并且提出其影响机理和实现路径.机制分析表明,数字化转型增强了企业的数据资本,数据资本赋能企业,降低参与国际分工的交易成本,助力企业打通外循环,提高企业外循环水平.经验研究证实,数字化转型能够助力企业打通外循环,提高企业外循环水平,对企业直接参与外循环的促进作用显著大于间接参与外循环.异质性分析表明,与小微型企业相比,数字化转型对大中型企业外循环的促进作用更大;对于大中型企业而言,数字化转型着力助推其直接参与外循环,对其间接参与外循环的促进作用不显著;与非主要商业城市相比,数字化转型对位于主要商业城市的企业直接参与外循环的促进作用更大;与主要商业城市相比,数字化转型对位于非主要商业城市的企业间接参与外循环的促进作用更大.     

Empirical Evidence on the Relationship between Mobile Termination Rates and Firms' Profits

The theoretical literature on mobile termination rates (MTRs) is inconclusive on how the level of MTRs affects overall consumer charges and firms' profits. We show that when firms offer bundles with fixed included usage – a tariff structure that has become more common in recent years – an identical change in all MTRs does not affect firms' retail prices or profits. We use a panel dataset from saturated European markets to estimate the effect of MTRs on mobile operators' profits. As predicted by the theoretical model, we cannot reject the fact that firms' profits are unaffected by an identical change in all MTRs.     

The Losses from Trade Restrictions: Policy Dynamics with Firm Selection and Endogenous Markup

In this paper, I explore the aggregate effects of trade restrictions in a two‐country, dynamic, general equilibrium (DGE) model with firm selection and variable adjustment of markup. As a response to the trade collapse in the global crisis of 2008 and 2009, temporary trade restrictions have emerged in several countries. With analyzing the dynamics of a negative macroeconomic shock in the home economy first, and the subsequent introduction of trade restrictions in the foreign economy second, I show that both economies are in a worse position than they were during the economic downturn. The follow‐ups to the recession and trade restrictions are investigated through three mechanisms: (1) variable markup as a new avenue of increasing competitive pressure for producers (e.g. more competitive firms lower their markups); (2) average individual firms' specific productivity cut‐off, which induces their optimum export choice (e.g. an increase in the export productivity cut‐off means exporting becomes more difficult than before.); and (3) the movement of international relative prices (e.g. the real exchange rate and terms of trade).     

A Simple Theory of Trade,Finance and Firm Dynamics

A stylized monopolistic competition model of international trade is proposed where firms differ with respect to the expected economic lifetime of their innovations. Upon entry, they receive a commonly observed signal which is updated over time. Jointly with partial irreversibility of investment, this generates heterogeneity in effective discount rates and, thus, in the cost of finance. In line with evidence, the model predicts a negative correlation between firms' financing costs and their age. Over a firm's life cycle, per period net profits and the export participation probability grow. Exporters are less likely to exit than purely domestic firms. Belief updating entails excessive financing of incumbents relative to entrants and too much exporting. Asymptotically, trade liberalization reduces overall general equilibrium exit rates, but it does not necessarily increase welfare. With multiple asymmetric export markets, firms gradually expand their market coverage and total sales. A confidence crisis modeled by belief reversion causes an over‐proportional decrease in exports, thereby offering a novel interpretation of the trade slump in 2008/09.     

Fixed export cost heterogeneity, trade and welfare

Recent literature on the workhorse model of intra-industry trade has explored heterogeneous cost structures at the firm level. These approaches have proven to add realism and predictive power. This paper presents a new and simple heterogeneous-firms specification. We develop a symmetric two-country intra-industry trade model where firms are of two different marginal cost types and where fixed export costs are heterogeneous across firms. This model traces many of the stylized facts of international trade. However, we find that with heterogeneous fixed export costs there exists a positive bilateral tariff that maximizes national and world welfare.     

Estimating Labor Demand with Fixed Costs*

We consider a dynamic model in which firms decide whether or not to vary labor in the presence of fixed costs. By exploiting the first‐order condition for optimality, we derive a semireduced form in which firms' intertemporal employment is defined by a standard marginal productivity condition augmented by a forward‐looking term. We obtain a marginal productivity equilibrium relation that takes into account the future alternatives of adjustment or nonadjustment that firms face. We use the structural parameter from this condition to estimate the fixed cost within a discrete decision process. Fixed costs are about 15 months' labor cost.     

Asymmetric knowledge flows and localization with endogenous R&D: A dynamic analysis

Empirical evidence suggests that technological spillovers also depend on the mode chosen by firms to serve the foreign market, since a closer location increases the degree of knowledge transmission. Therefore multinationals may want to locate subsidiaries near sources of technological innovation and domestic firms may take advantage of this closer location by absorbing more easily technological knowledge. Within this context we analyse the interaction between firms' international strategy and innovative performance by using a dynamic oligopoly model where knowledge flows increase with geographical proximity. Our results illustrate the relationship between firms' innovation and foreign expansion strategy when localized spillovers are considered.     

MODELLING PRODUCTIVITY EFFECTS OF TRADE OPENNESS: A DUAL APPROACH*

A cost function framework is used to model the productivity effect of trade openness in terms of cost saving. The idea of ‘cost saving’ is closer to the entrepreneur's view of productivity. An entrepreneur would expect a reduction in the cost of production if trade openness brings any benefits to their firm. The output‐enhancing (primal) productivity effect of openness is obtainable from the cost‐saving (dual) productivity effect through the cost‐output link. The cost‐function framework also enables us to investigate whether trade openness induces firms to adopt a technology that is biased towards the use or saving of any factor of production. An empirical exercise based on time series data for the Australian two‐digit manufacturing industries reveals significant cost‐saving and output‐enhancing productivity effects of trade openness. Trade openness is biased towards the saving of labour and the use of capital. These results are quite insensitive to the choice of alternative measures of openness.     

Not so different from non-traders

This paper uses a unique, comparable firm-level dataset covering more than 80 developing middle-income economies to provide a novel set of stylized facts on firms engaging in international trade, focusing on the Middle East and North Africa (MENA) region. We show that firms in MENA are more likely to export and/or import than their counterparts elsewhere. However, we only find the expected positive and significant productivity premia for exporters outside of MENA. While MENA's larger exporters are indeed more productive than non-exporters, a large share of exporters – the comparatively low-volume ones – are not. We also confirm positive and significant size and productivity premia for manufacturers that import only, with productivity premia in MENA at least double of those in middle-income economies elsewhere. In contrast, we find no size or productivity premia for MENA's manufacturers that export, but do not import. These patterns are consistent with substantial distortions in the relative fixed and variable costs of trading, likely a reflection of selectively applied policies.     

Skills scarcity and export intensity

We describe a model of trade with skills-based product differentiation and non-proportional trade costs that predicts a positive correlation between firms' export intensity, the price of their exports and the wages they pay to their workers. In equilibrium, firms that employ workers with comparatively scarcer skills export a larger proportion of their output, pay higher wages and charge higher prices. In line with empirical evidence, the model predicts that trade liberalization can cause the distribution of earnings to become more polarized, with patterns that reflect the heterogeneous effects of trade liberalization on firms' export performance.     

Trade and income at different stages of economic development

Recent research has found a strong positive effect of international trade on real income. We propose that this relationship may vary with the level of economic development. Using the instrument variable threshold regressions approach proposed by Caner and Hansen (2004), we find evidence that trade openness contributes to uneven development. Greater trade openness tends to have beneficial effects on real income for more industrialized countries. For less developed countries, however, trade openness appears to influence real income in a significantly negative way. The findings imply that greater international trade and integration may foster inequality of nations and hence contribute to more diverging economies.     

Multinational production,exports and aggregate productivity

This paper presents and estimates a dynamic model of multinational production (MP) and exports with heterogeneous firms. The model highlights the interaction between firms' location and export decisions and their effect on aggregate productivity. The model is structurally estimated using firm-level Indonesian manufacturing data. The results are broadly consistent with the pattern of productivity, exports and MP across firms. Counterfactual experiments suggest that there are substantial productivity gains due to international trade and MP. The implied changes in steady state real wages, however, are relatively small. The experiments emphasize that the nature of firm-level trade and MP interactions are crucial to determining the aggregate effects of trade and foreign direct investment policy.     

Trade Liberalization and Firm Productivity: Evidence from Chinese Manufacturing Industries

This paper examines the impact of tariff reduction following China's World Trade Organization (WTO) entry on the productivity of Chinese manufacturing firms using a firm‐level panel database that comprises all of China's manufacturing firms with an annual turnover above 5 million yuan and that spans the period of 2000–2006. An instrumental variable estimator is used to account for the endogeneity of the tariff reduction. The results indicate that China's trade liberalization in the five years following its WTO entry has led to a 0.94% annual increase in total factor productivity for Chinese manufacturing firms. However, the overall productivity gain from the tariff reduction is a net result of a productivity depressing effect of output tariff reduction and a productivity enhancing effect of input tariff reduction. Both effects have diminished in magnitude over the years after China joined the WTO. Firm heterogeneity and turnover plays an important role in generating gains from trade liberalization. The surviving firms have managed to cope with and take advantage of lower tariffs. The extent to which the tariff reduction affects Chinese firms' productivity is also dependent on the ownership structure of the firms with foreign‐invested firms being the clear winner.     

A Welfare Ranking of Multilateral Reductions in Real and Tariff Trade Barriers when Firms are Heterogenous

Trade liberalization comes about through reductions in various types of trade barriers. This paper introduces, apart from the customary real trade costs (i.e. iceberg and fixed export costs), two revenue generating trade barriers (i.e. an ad valorem tariff and a trade license) into a standard heterogeneous‐firms‐trade model with Pareto distributed productivities. We derive analytical welfare rankings of all four liberalization channels for an equal effect on two openness measures, for any trade cost level and while all four barriers are simultaneously present, i.e. for any initial equilibrium. We show that when openness is measured at retail prices, not border prices, the welfare rankings are sensitive to the degree of efficiency in revenue redistribution, e.g. the share of tariff revenues wasted on rent‐seeking activities. As a result, multilateral tariff reductions can switch from the least to the most preferred mode of liberalization. Among the other three barriers we establish a universal welfare ranking for any strictly positive level of revenue redistribution and for either measure of openness.     

Credit Constraints,Technology Choice and Exports: A Firm‐level Study for Latin American Countries

In this paper, constraints on technology choice and credit access are introduced into a firm‐level trade model in a dynamic setting in order to explain factors that limit benefits to a firm from trade liberalization. Theoretical analysis shows that firms face credit constraints depending on their initial productivity and the cost of credit. As a result, credit‐constrained firms may not be able to cross the minimum productivity threshold needed to enter and compete in a foreign market. Empirical analysis using firm‐level panel data for six Latin American countries confirms that financial constraints negatively influence firms' export and investment decisions.     

Sunk costs of exporting and the role of experience in international trade

This paper estimates the importance of destination‐specific sunk costs of exporting and investigates the role of firms' previous experience in international trade for the decision to export to a market. While destination‐specific sunk costs are important, firms' experience in international trade can help to overcome these costs more easily. In particular, import experience from a market is found to facilitate exporting to this country and export experience from other markets can increase the probability of exporting to a country. This latter effect turns out to be conditional on the characteristics and number of markets served by a firm.     

Trade and Global Pollution in Dynamic Oligopoly with Corporate Environmentalism

This paper examines the effects of international trade in the presence of dynamic oligopolistic competition where the stock of global pollution has a negative welfare effect and the oligopolists' objectives may include society's pollution damage as well as private profits. In a symmetric case where the number of firms, emission coefficient, and firms' environmental consciousness are the same in two countries, an opening of trade unambiguously improves each country's welfare in the short run. In the long run, however, trade increases the stock of global pollution and hence, whether opening of trade is beneficial depends on the parameters of the economy. If there are asymmetries between countries, the short‐run gains from trade in both countries are not necessarily guaranteed, because trade liberalization may increase output in one country and reduce it in the other. Moreover, free trade may result in lower pollution stock than under autarky.     

Financing R&D in Chinese private firms: Business associations or political connection?

Using a new and unique dataset of Chinese private firms, this paper explores how private firms access bank loans to finance innovative activities. The results reveal that political connection, rather than membership in a government-controlled business association, largely determines private firms' innovations by providing access to bank loans. Furthermore, the “grease-the-wheels” mechanism of political connection is stronger if the firms are more constrained financially, located in regions with low levels of financial development, or located in regions with relatively under-developed institutional environments. Finally, cash flow, used to measure internal financing, and trade credit, used to measure informal financing, are important alternative financing channels and support firms' R&D investments. Our paper implies that China's government needs to continue fostering a good financing environment and supporting innovation activities.