Working Paper: NBER ID: w24807
Authors: Cecile Gaubert; Oleg Itskhoki
Abstract: Large firms play a pivotal role in international trade, shaping the export patterns of countries. We propose and quantify a granular multi-sector model of trade, which combines fundamental comparative advantage across sectors with granular comparative advantage embodied in outstanding individual firms. We develop an SMM-based estimation procedure, which takes full account of the general equilibrium of the model, to jointly estimate these fundamental and granular forces using French micro-data with information on firm domestic and export sales across manufacturing industries. We find that granularity accounts for about 20% of the variation in realized export intensity across sectors, and is more pronounced in the most export-intensive sectors. In turn, idiosyncratic firm dynamics accounts for a large share of the evolution of a country's comparative advantage over time. Governments face strong incentives to target trade policy at large individual foreign exporters, and to use lenient antitrust regulation at home to substitute for beggar-thy-neighbor trade policy.
Keywords: comparative advantage; international trade; granular model; firm dynamics; trade policy
JEL Codes: D20; D43; F10; F40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm dynamics (D21) | effectiveness of trade policies (F68) |
| exit of a large firm (L19) | export performance of a sector (P17) |
| individual firms (L20) | country's comparative advantage (F14) |
| granular comparative advantage (F12) | realized export intensity (F14) |