Firms and Economic Performance: A View from Trade

Abstract

This paper uses US import data to compare firms from multiple origins in a single destination. Guided by structural equations, we decompose countries' market shares into the contribution of the number of firm-products, their average attributes (quality and unit values) and reallocations among heterogeneous firms. We show that heterogeneity in attributes is important for explaining average exports and why these are higher from richer and larger countries. While we find evidence consistent with selection and misallocation, they do not seem the sole drivers of the results. In conclusion, reallocations among heterogeneous firms are important for trade, economic development and welfare.

Keywords: Firm Heterogeneity, granularity, international trade, prices, Quality, US Imports, Variety

JEL Classification: F12, F14