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Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics

Author

Listed:
  • Andrew B. Bernard

    (Institute for Fiscal Studies and Dartmouth University)

  • J. Bradford Jensen

    (Institute for Fiscal Studies)

  • Peter K. Schott

    (Institute for Fiscal Studies and Yale University)

Abstract
This paper examines the response of industries and firms to changes in trade costs. Several new firm-level models of international trade with heterogeneous firms predict that industry productivity will rise as trade costs fall due to the reallocation of activity across plants within an industry. Using disaggregated U.S. import data, we create a new measure of trade costs over time and industries. As the models predict, productivity growth is faster in industries with falling trade costs. We also find evidence supporting the major hypotheses of the heterogenous- firm models. Plants in industries with falling trade costs are more likely to die or become exporters. Existing exporters increase their shipments abroad. The results do not apply equally across all sectors but are strongest for industries most likely to be producing horizontally-differentiated tradeable goods.

Suggested Citation

  • Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2003. "Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics," IFS Working Papers W03/10, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:03/10
    as

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    File URL: http://www.ifs.org.uk/wps/wp0310.pdf
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    References listed on IDEAS

    as
    1. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
    2. Roberts, M. & Tybout, J., 1993. "An Empirical Model of Sunk Costs and the Decision to Export," Papers 4-93-3, Pennsylvania State - Department of Economics.
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    5. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April.
    6. Andrew B. Bernard & J. Bradford Jensen, 2004. "Why Some Firms Export," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 561-569, May.
    7. Aw, Bee Yan & Chung, Sukkyun & Roberts, Mark J, 2000. "Productivity and Turnover in the Export Market: Micro-level Evidence from the Republic of Korea and Taiwan (China)," The World Bank Economic Review, World Bank, vol. 14(1), pages 65-90, January.
    8. Francisco Rodríguez & Dani Rodrik, 2001. "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 261-338, National Bureau of Economic Research, Inc.
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    12. Andrew B. Bernard & J. Bradford Jensen, 2002. "The Deaths of Manufacturing Plants," NBER Working Papers 9026, National Bureau of Economic Research, Inc.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Plant deaths; survival; exit; exports; employment; tariffs; freight costs; transport;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General

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