Heterogeneous Firm Trade Research Articles

Research on the impact of trade barriers on the binary marginal of enterprise exports: India's anti-dumping of China

ABSTRACT This paper derives a theoretical model of the impact of anti-dumping barriers on enterprise exports under the framework of heterogeneous firm trade theory and evaluates the trade-damaging effect of India's anti-dumping against China. The results show that the export volume and the number of export enterprises involved in anti-dumping cases show a downward trend after the anti-dumping is imposed. After controlling for heterogeneity, anti-dumping does not reduce the exports of incumbent enterprises. Anti-dumping mainly affects the exports of Chinese enterprises through the expansion margin, and has a small impact on the intensification margin. This research provides references for improving international trade development.

Border carbon adjustment (BCA) and heterogeneous firms trade

Border carbon adjustment (<scp>BCA</scp>) and heterogeneous firms trade

Multifaceted impacts of R&D activities on exporting behavior

ABSTRACT This study uses data from China to investigate the multidimensional impacts of R&D activities on a firm’s exporting behaviour. The findings confirm the well-documented positive effects of innovations on export participation and export volumes while also uncovering additional aspects of innovation’s influence on exporting. Specifically, firms that engage in research activities charge lower prices, offer a wider variety of exported products, enter more international markets, and demonstrate a tendency to expand into smaller and less affluent export markets. These findings offer cohesive and unified support for the effects of innovation on export that align with the implications of heterogeneous-firm trade models.

Salmon trade duration: The application of firm‐level trade transaction data from the Norwegian salmon industry

AbstractSeafood products are mainly provided through trade to international markets and Norway is the major international player for the export of salmon products. It is argued that fresh or chilled salmon, which are perishable products and Norway's main seafood export, need stable trade partners to safely and properly reach consumption markets. In this study, the firm‐to‐firm level trade transactional data for both exporters and importers for the 2005–2018 period was utilized for a trade duration analysis. The Kaplan–Meier survival estimators, Cox proportional hazard model, and frailty model were used to study the stability of trade relations between the partners through survival and hazard models. The study considers the heterogeneous firm trade model along with a theoretical framework. The results show that, on average, the trade duration for the salmon trade between firms is 2.39 years, which is relatively low for a perishable product such as salmon. It shows that the market entry and exit is relatively fast, and that the survival rate between the EU as a major demand market and non‐EU countries is not very different. However, core and periphery markets can be defined by considering the survival rate, as major processing hubs in the EU, such as Poland and France as core markets, have higher survival rates compared with other countries that can be considered peripheries. Both extensive and intensive margins were found to reduce the hazard ratio. Different hazard ratios were also found between different types of exporter or ones utilizing different means of transport. We conclude that the trade duration between the partners can be increased if the competition in the market increases, which is probably possible in markets like the United States where other exporters such as Chile are available.

Border Carbon Adjustment (BCA) and Heterogeneous Firms Trade

Border Carbon Adjustment (BCA) and Heterogeneous Firms Trade

Export product quality and markup of firms: evidence from China

ABSTRACT In this study, we analyse how export product quality affects the markup of firms. First, on the basis of the heterogeneous firm trade model, we clarify the internal mechanism of the effect of export product quality on the markup of firms through the channels of firm marginal production cost and product pricing. Second, using the micro data of Chinese firms from 2000 to 2007 and by estimating firm-level markup and export product quality, we construct a dynamic panel model to empirically analyze the impact of export product quality on the markup of the Chinese firms and mechanism of the impact. Results of the empirical analysis support the prediction of the theoretical model, that is, improvement of export product quality will positively affect the markup of firms by increasing their marginal cost of production and product pricing. From the product quality perspective, we provide new insights for understanding the impact of the export market on the markup of firms.

A Quantitative Model of International Trade Based on Deep Neural Network.

This paper is an in-depth study of international trade quantification models based on deep neural networks. Based on an in-depth analysis of global trade characteristics, a summary of existing problems, and a comparative analysis of various prediction methods, this paper constructs the ARIMA model, BP neural network (BPNN) model, and deep neural network (DNN) model to make a comprehensive comparison of international trade quantification. The results show that the nonlinear model has a global trade quantification has some advantages over linear models, and the deep model shows better prediction performance than the shallow model. In addition, preprocessing of the time series is considered to improve the prediction accuracy or shorten the model training time. The empirical modal analysis method (EMD) is introduced to decompose the time series into eigenmodal functions (IMFs) of different scales. Then the decomposed IMF series are arranged into a matrix using principal component analysis (PCA) to reduce the dimensionality and extract the data containing the most stock index information features; these features are then input into BPNN and DNN for combined prediction, thus constructing the combined models EMD-PCA-BPNN and EMD-PCA-DNN. Based on Melitz's heterogeneous firm trade theory and its development by Chaney, a quantitative trade model incorporating production heterogeneity is constructed through a multisector extension. This paper adopts a general equilibrium analysis, which makes the modeling process pulse clear. The completed model has high flexibility and scalability, which can be applied to quantitative analysis of various problems.

Firm heterogeneity, variable markups, and multinational production: A review from trade policy perspective

This paper surveys the main ingredients and results of heterogeneous firms trade policy literature that has been developing since the early 2000s. First, I present the stylized facts regarding firm heterogeneity, firm-level markups, and multinational production's (MP) global structure. I then survey the trade policy papers that build on the workhorse model of firm heterogeneity. Third, I summarize the recent development of theoretical approaches of modeling the firm-level markups and its trade policy implication. Fourth, I discuss the theoretical frameworks that incorporate MP into heterogeneous firms' framework and their trade policy implication. Finally, I discuss directions for future research and offer suggestions for further readings.

Corporate Environmental Performance and the Choice of Export Mode – Based on the Theory of Heterogeneous Firm Trade

Heterogeneous firm trade theory holds that firms' productivity is closely related to firms' export mode and Corporate Environmental Performance (CEP). CEP as one of the important elements associated with firms' productivity, has a significant impact on firms' export mode. The objective of the paper is to assess the enterprises with import and export business in Maoming City. Primary data was used to obtain data, while binary logistic regression analysis was used to analyse the data to determine the influence of CEP on export mode. The results show that the CEP has a positive impact on the export mode. Furthermore, results show that enterprises with better CEP are more inclined to choose the direct export mode, and vice versa. This result is consistent with the theory of heterogeneous firm trade. The study recommends that the Chinese government should give full consideration to the export mode of enterprises when making export policies and make full use of CEP's positive influence on the export mode to promote the internationalisation strategy of enterprises and realise the maximisation of enterprise value.

Trade adjustment dynamics and the welfare gains from trade

We introduce time and risk into the fixed-variable cost tradeoff in heterogeneous firm trade models: Investing in exporting gradually and stochastically lowers the costs of exporting. In the model, aggregate trade dynamics arise from producer-level decisions to invest in lowering their future variable export costs, and tariff reforms generate time-varying trade elasticities. The gains from reducing tariffs arise from substituting away from firm creation and towards exporting. This substitution is larger when new exporters are smaller and take longer to grow into successful exporters. The welfare gains from reducing tariffs are much larger than the long-run changes in consumption and the welfare gains cannot be recovered from a static model or from formulas based on those models. Comparing steady-state outcomes can predict a welfare loss from reform when the actual change is positive.

The impact of destination tariffs on China’s exports: Country, firm, and product perspectives

Based on multi-product heterogeneous firm trade theory, we combine China's customs data with the World Integrated Trade Solution’s (WITS) tariff data from 2002 to 2013 and analyze the impact of destination tariffs on China's exports at the country, firm, and product levels. The results reveal that tariffs had a negative effect on country-level exports and their extensive margins. After controlling for the inter-firm composition effect, tariffs had negative effects on firm-level exports and their intensive margins, but positive effects on their extensive margins. After also controlling for the within-firm export composition effect, tariffs had a negative impact on the exports of core products; however, the negative impact diminished as the core grade and technological content of the products increased. Using these elasticities to analyze Sino-U.S. trade frictions, we determine that the additional U.S. tariffs reduced China's exports of high-tech products more than its medium- and low-tech products.

Risk sharing and export performance with firm heterogeneity

AbstractWe investigate how market uncertainty affects the export performance of a firm through financial frictions. We first extend Melitz's (2003) heterogeneous firm trade model by incorporating demand shocks, linking the demand uncertainties to the financing costs of firms. In this extension, the default probability is endogenously determined by a firm's productivity and demand uncertainty. Hence, firms with higher productivity or lower market uncertainty are offered lower interest rates and thus show better export performance. As an application, we also show that a risk‐sharing mechanism, that pools default risk for a certain group of firms, lowers the default risk. This mechanism allows banks to charge lower interest rates to the member firms and therefore ultimately improves their export performance in both extensive and intensive margins. We find a real‐world example of such a mechanism from business groups in Korea. Using Korean firm‐level data, we show that the more diversified the business group, the greater the likelihood that its member firms export and the bigger their export revenues. We also show that our results are robust to alternative explanations for Korean business groups’ export competitiveness.

Learning How To Export

AbstractIn this paper, we present a standard quality ladders endogenous growth model with one significant new assumption: it takes time for firms to learn how to export. It is known that the welfare gains from trade liberalization implied by a large class of models like the Armington gravity model, the Krugman model, and the Melitz model are small. Our quality ladders model is consistent with a number of firm‐level stylized facts from the heterogeneous firms trade literature and is, in addition, capable of generating very large welfare gains from trade liberalization.

Multi-product firms and product quality

We examine the global operations of multi-product firms. We present a flexible heterogeneous-firm trade model with either limited or strong scope for quality differentiation. Using customs data for China during 2002–2006, we empirically establish that firms allocate activity across products in line with a product hierarchy based on quality. Firms vary output quality across their products by using inputs of different quality levels. Their core competence is in varieties of superior quality that command higher prices but nevertheless generate higher sales. In markets where they offer fewer products, firms concentrate on their core varieties by dropping low-quality peripheral goods on the extensive margin and by shifting sales towards top-quality products on the intensive margin. The product quality ladder also governs firms' export dynamics, both in general and in response to the exogenous removal of MFA quotas on textiles and apparel. Our results inform the drivers and measurement of firm performance, the effects of trade reforms, and the design of development policies.

Explaining the size differences of exporter premia: theory and evidence

Two decades of research have established pronounced exporter productivity premia (EPP) and exporter size premia (ESP). Yet, we do not know why such exporter premia differ so widely in magnitude across countries or sectors? We take this question to the theory and to the data. We derive the sectoral EPP and ESP in a standard heterogeneous firms trade model and apply the insights from the model to guide our empirical investigation of detailed Danish firm-level data. We show that a significant share of the observed variation in EPP and ESP across sectors can be accounted for by sector differences in the underlying variation in productivity dispersion, variable trade costs, the ratio of fixed export costs to fixed costs of production, and the elasticity of demand.

Quality Selection, Sectoral Heterogeneity and Chinese Exports

AbstractRecent models of international trade have identified product quality as an important determinant of bilateral trade flows. In this paper we examine the relationship between the characteristics of the export market and the aggregate quality of products using Chinese data. We find evidence that product unit values vary with standard gravity variables in a different manner across sectors of the Chinese economy and run contrary to earlier findings for the USA. These results are not compatible with existing heterogeneous firm trade models with constant mark‐up and the extension to include product quality. We construct a heterogeneous firm trade model with quality differences and spatial price discrimination, and show that the model provides plausible explanations for our empirical finds as well as other existing findings in the literature.

Pricing strategy of emerging market exporters in alternate currency regimes: The role of comparative advantage

The exchange rate pass-through (ERPT) literature has not considered product-level comparative advantage (CA) as a source of heterogeneous firm productivity, whilst the heterogeneous-firm trade literature suggests that a firm's production choice may determine its productivity level and also its pricing decision as both the degree of market power and the fixed costs of exporting vary across products. This paper combines these two strands of literature and empirically analyses the export pricing behaviour of Chinese and Indian exporters in 1994–2007 whilst considering 6-digit product-level CA at the intercept and at the slope. Previous ERPT estimates that did not take product-level CA into account are biased as CA is significant in both cases. ERPT is more incomplete in high CA products but export prices increase with export specialization because a stronger presence in export markets allows higher market power. If China were to let its currency float, Chinese exporters' pricing strategy would become a classic case of incomplete ERPT. On the contrary, Indian exporters' pricing strategy remains robust regardless of the exchange rate regime. This result supports recent calls for the adoption of a flexible exchange rate regime, particularly in the case of China.

Impacts of star-rated hotel expansion on inbound tourism development: evidence from China

ABSTRACTThis article applies heterogeneous firm trade theory, developed for the manufacturing sector, to the hotel and tourism industry to detect expansion among star-rated hotels in the context of inbound tourism development at the macro level. This article adopts both a traditional ordinary least squares (OLS) panel model and a threshold panel model using data from 31 administrative regions (provinces) in China during the 2004–2013 period. The results reveal remarkable and significant nonlinear relationships between star-rated hotel expansion and inbound tourism development, thereby offering sound evidence supporting the research hypotheses. Star-rated hotel expansion in most provinces clusters in the standardized threshold between 0.48 and 0.83, while only a few hotels have realized ‘leapfrog development’ thus far. In addition, as in the particular case of star-rated hotels, inbound tourism development should be promoted through investments in human resources rather than through the exploitation of natural tourism resource endowments. The implications of our results are that rational development plans can be made according to different expansion levels of star-rated hotels in corresponding regions, when both hotel labour productivity and macro tourism environment are considered.

Credit Distribution and Exports: Microeconomic Evidence from China

This paper explores how the distribution of credit supply within an industry affects that industry's export intensity (the export-to-sales ratio) and export propensity (the ratio of the number of exporters to the total number of firms). Using a heterogeneous firm trade model, we derive two opposing hypotheses: for industries with relatively low (high) foreign market penetration costs, a more dispersed credit distribution decreases (increases) the industry's export intensity and the number of exporters. The empirical results using Chinese firm-level data and bank loan data support both hypotheses and confirm the significant heterogeneous impacts of credit distribution on exports across industries.

Comments by Moekti P. Soejachmoen, on Economic Implications of Deeper South Asian–Southeast Asian Integration: A CGE Approach

As with other CGE studies, the results depend heavily on the chosen assumption and base year. This study chose 2010 as base year, which directly follows the 2008–09 global financial crisis. Therefore it limits a bias from this crisis, although most of the related Asian countries were not significantly affected by it. The study uses a model that incorporates recent innovations in heterogeneous firm trade theory, where the firms are heterogeneous in productivity. This enables the model to reflect intra-industry changes when trade liberalization happens. By choosing this model, the results will be more realistic and provide more precise directions for policies.