Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics

34 Pages Posted: 25 Apr 2003

See all articles by Andrew B. Bernard

Andrew B. Bernard

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

J. Bradford Jensen

Georgetown University - McDonough School of Business; Peterson Institute for International Economics

Peter K. Schott

Yale University - School of Management; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Multiple version iconThere are 2 versions of this paper

Date Written: April 2003

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 heterogenous-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.

JEL Classification: F1, L1, L6

Suggested Citation

Bernard, Andrew B. and Jensen, J. Bradford and Schott, Peter K., Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics (April 2003). Available at SSRN: https://ssrn.com/abstract=398543

Andrew B. Bernard (Contact Author)

Dartmouth College - Tuck School of Business ( email )

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HOME PAGE: http://mba.tuck.dartmouth.edu/pages/faculty/Andrew.Bernard/

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR) ( email )

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J. Bradford Jensen

Georgetown University - McDonough School of Business ( email )

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Peterson Institute for International Economics ( email )

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Peter K. Schott

Yale University - School of Management ( email )

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203-436-6974 (Fax)

HOME PAGE: http://www.som.yale.edu/faculty/pks4

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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Yale University - Cowles Foundation

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New Haven, CT 06520-8281
United States

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