Working Paper: NBER ID: w14928
Authors: Juan Carlos Hallak; Jagadeesh Sivadasan
Abstract: We develop a model of international trade with export quality requirements and two dimensions of firm heterogeneity. In addition to "productivity", firms are also heterogeneous in their "caliber" -- the ability to produce quality using fewer fixed inputs. Compared to single-attribute models of firm heterogeneity emphasizing either productivity or the ability to produce quality, our model provides a more nuanced characterization of firms' exporting behavior. In particular, it explains the empirical fact that firm size is not monotonically related with export status: there are small firms that export and large firms that only operate in the domestic market. The model also delivers novel testable predictions. Conditional on size, exporters are predicted to sell products of higher quality and at higher prices, pay higher wages and use capital more intensively. These predictions, although apparently intuitive, cannot be derived from single-attribute models of firm heterogeneity as they imply no variation in export status after size is controlled for. We find strong support for the predictions of our model in manufacturing establishment datasets for India, the U.S., Chile, and Colombia.
Keywords: export behavior; quality constraints; firm heterogeneity
JEL Codes: F10; F12; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm size (L25) | export status (F10) |
| export status (F10) | quality of goods (L15) |
| export status (F10) | prices (P22) |
| export status (F10) | average wages (J31) |
| export status (F10) | capital intensity (E22) |
| productivity (O49) | export status (F10) |
| caliber (L64) | export status (F10) |