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Falling trade costs, heterogeneous firms and industry dynamics

Author

Listed:
  • Bernard, Andrew B.
  • Bradford Jensen, J.
  • Schott, Peter K.
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 heterogeneous-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

  • Bernard, Andrew B. & Bradford Jensen, J. & Schott, Peter K., 2003. "Falling trade costs, heterogeneous firms and industry dynamics," LSE Research Online Documents on Economics 20027, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:20027
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    References listed on IDEAS

    as
    1. 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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    More about this item

    Keywords

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

    JEL classification:

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

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