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Falling trade costs, heterogeneous firms and industry dynamics

Bernard, Andrew B., Bradford Jensen, J. and Schott, Peter K. (2003) Falling trade costs, heterogeneous firms and industry dynamics. CEPDP, 585. Centre for Economic Performance, London School of Economics and Political Science, London, UK. ISBN 075301663X

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 2003 the authors
Library of Congress subject classification: H Social Sciences > HF Commerce
Journal of Economic Literature Classification System: F - International Economics > F1 - Trade > F10 - General
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 585
Date Deposited: 28 Jul 2008 13:27
URL: http://eprints.lse.ac.uk/20027/

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