Working Paper: CEPR ID: DP6342
Authors: Dalia Marin; Thierry Verdier
Abstract: This paper develops a theory which investigates how firms' choice of corporate organization is affecting firm performance and the nature of competition in international markets. We develop a model in which firms' organisational choices determine heterogeneity across firms in size and productivity in the same industry. We then incorporate these organisational choices in a Krugman cum Melitz and Ottaviano model of international trade. We show that the toughness of competition in a market depends on who - headquarters or middle managers - have power in firms. Furthermore, we propose two new margins of trade adjustments: the monitoring margin and the organizational margin. International trade may or may not lead to an increase in aggregate productivity of an industry depending on which of these margins dominate. Trade may trigger firms to opt for organizations which encourage the creation of new ideas and which are less well adapt to price and cost competition.
Keywords: firm heterogeneity; international trade; endogenous firm organizations; productivity; theory of the firm; trade adjustment
JEL Codes: D23; F12; F14; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Type of corporate organization (L22) | Firm productivity (D21) |
| Type of corporate organization (L22) | Competition in international markets (L13) |
| Trade shock (F14) | Firm productivity (D21) |
| Trade shock (F14) | Shift from p-organization to a-organization (L39) |
| Shift from p-organization to a-organization (L39) | Firm productivity (D21) |
| Trade shock (F14) | Competition (L13) |
| Shift from p-organization to a-organization (L39) | Markups and profits (D49) |