In the Gains from Trade as Firms Matter, So Do Their Sizes

Abstract

This article examines whether the gains from economic integration agreements (EIAs) vary across firm sizes. The empirical analysis makes use of a unique and unbalanced panel dataset with 1,520 country pairs, firm sizes and EIAs from 2007 to 2017. First, we decompose the aggregate export flows across firm sizes, that is, micro, small, medium and large. Second, we deconstruct the extensive and intensive export margins across firm sizes. The empirical model follows a panel estimator with structural gravity specification and estimates the EIA coefficients by employing three-way (exporter-time, importer-time and country-pair) fixed effects. The results indicate that EIAs positively affect overall export flows for firms of all sizes; however, for large and medium-sized firms, this positive effect is primarily through the intensive margin, whereas, for the small and micro-sized firms, it is exclusively through the extensive margin. JEL Codes: F1, F15