Firm Heterogeneity in Trade

Lecture slides

 * Productivity dispersion
 * The Melitz model
 * Quantitative evaluation
 * Aggregate implications
 * New directions

Problem Set 1
Take the Lucas model with $$Y_i = A_i^{1-\nu}L_i^\nu$$ and constant price p. Take the Melitz model with $$Y_i = A_i L_i$$ and downward sloping inverse demand $$p_i = C Y_i^{-1/\theta}$$ (where C is some constant independent of i).

Suppose we observe a collection of revenues and employments for firms, {piYi, Li}. We do not observe prices at the firm level.

Derive, in each model, how revenue and employment depends on managerial talent A or productivity A. Given that A is unobserved, argue that the two models cannot be distinguished in this data.

Problem Set 2
Download the simulated data of manufacturing firms. The dataset has about 15,000 firms, recording log output (pretend it is measured in physical quantity), log employment, and a dummy for exporter status. The joint distribution of these variables replicates that in Hungarian manufacturing in 1999.


 * 1) What is the fraction of firms that export? What is the fraction of workers employed by them? How big is their market share in output?
 * 2) Estimate the employment premium of exporters by regressing log employment on the exporter dummy. Interpret what it means.
 * 3) Estimate the exporter premium in labor productivity (output per worker). Do this with and without controlling for firm employment. Interpret both findings.
 * 4) Suppose that each exporter increased their output by 10 percent, while keeping their productivity constant.
 * 5) Calculate how many additional workers will be hired by exporters.
 * 6) Assuming that these workers come from nonexporters (there is no unemployment, or firm entry/exit), calculate by what percent nonexporters will have to decrease their employment. (Ignore integer problems, having 0.8 workers is fine.)
 * 7) Given this reallocation of workers from nonexporters to exporters, calculate in the data the percentage increase in aggregate manufacturing labor productivity. (Hint: the output of nonexporters will decrease, so total output would go up by less than 10 percent.)

Productivity dispersion

 * Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-65, June.

Measurement

 * Olley and Pakes, 1996. "The dynamics of productivity in the telecommunications equipment industry". Econometrica.
 * Van Biesebroeck, Johannes, 2008. "The Sensitivity of Productivity Estimates," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 311-328.
 * Foster, Haltiwanger and Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?" American Economic Review 2008, 98:1, 394–425.
 * Athalay, 2012.
 * Nicholas Bloom & Benn Eifert & Aprajit Mahajan & David McKenzie & John Roberts, 2011. "Does Management Matter? Evidence from India," NBER Working Papers 16658, National Bureau of Economic Research, Inc.
 * Suresh de Mel & David McKenzie & Christopher Woodruff, 2008. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1329-1372, November.

Industry models

 * Robert E. Lucas, 1978. "On the Size Distribution of Business Firms". The Bell Journal of Economics, Vol. 9, No. 2 (Autumn, 1978), pp. 508-523.
 * Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
 * Andrew Atkeson and Patrick J Kehoe, 2005. "Modeling and Measuring Organization Capital". Journal of Political Economy.

Reallocation

 * Pavcnik, Nina, 2002. "Trade Liberalization, Exit, and Productivity Improvement: Evidence from Chilean Plants," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 245-76, January.
 * Brown, J. David & Earle, John S., 2008. "Understanding the Contributions of Reallocation to Productivity Growth: Lessons from a Comparative Firm-Level Analysis," IZA Discussion Papers 3683, Institute for the Study of Labor (IZA).
 * Hsieh and Klenow, 2009. "Misallocation and Manufacturing TFP in China and India." Quarterly Journal of Economics.

The Melitz model

 * Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
 * Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
 * Marc Melitz and Stephen Redding, 2012. "Heterogeneous Firms and Trade". Handbook.
 * Monika Mrázová and Peter Neary, 2012. "Selection Effects with Heterogenous Firms." working paper.

Quantitative evaluation

 * Miklós Koren and Roc Armenter, 2009. "Economies of Scale and the Size of Exporters". Working paper.
 * Holger Breinlich and Alejandro Cunat, 2008. "Trade Liberalization and Heterogeneous Firm Models: An Evaluation Using the Canada * US Free Trade Agreement". Working paper.

Aggregate implications

 * Arkolakis, Costinot and Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?". American Economic Review, 102(1): 94–130.
 * Julian di Giovanni and Andrei Levchenko, 2012. "Firm Entry, Trade, and Welfare in Zipf’s World"

New directions

 * Juan Carlos Hallak and Jagadeesh Sivadasan. "Firms’ Exporting Behavior under Quality Constraints"
 * Thomas J. Holmes and John J. Stevens, 2012. "An Alternative Theory of the Plant Size Distribution, with Geography and Intra* and International Trade"
 * Andrew B. Bernard Stephen J. Redding Peter K. Schott, 2011. "Multi-product Firms and Trade Liberalization." The Quarterly Journal of Economics (2011) 126 (3): 1271-1318.
 * László Halpern, Miklós Koren and Adam Szeid, 2011. "Imported Inputs and Productivity". Working paper.

Demand shocks

 * Jan De Loecker, 2011. "Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity," Econometrica, Econometric Society, vol. 79(5), pages 1407-1451, 09.
 * Andrea Pozzi and Fabiano Schivardi, 2012. "Demand or productivity: What determines firm growth?" Working paper.
 * Svetlana Demidova, Hiau Looi Kee and Kala Krishna, 2012. "Do Trade Policy Differences Induce Sorting? Theory and Evidence From Bangladeshi Apparel Exporters." Journal of International Economics, Volume 87, Issue 2, July 2012, Pages 247–261.