Firms' Exporting Behavior under Quality Constraints
Juan Carlos Hallak
University of San Andres - Department of Economics; National Bureau of Economic Research (NBER)
University of Michigan - Stephen M. Ross School of Business
May 1, 2009
US Census Bureau Center for Economic Studies Paper No. CES-WP-09-13
We develop a model of international trade with export quality requirements and two dimensions of firm heterogeneity. In addition to "productivity", firms are also heterogeneous in their "caliber" - the ability to produce quality using fewer fixed inputs. Compared to single attribute models of firm heterogeneity emphasizing either productivity or the ability to produce quality, our model provides a more nuanced characterization of firms' exporting behavior. In particular, it explains the empirical fact that firm size is not monotonically related with export status: there are small firms that export and large firms that only operate in the domestic market. The model also delivers novel testable predictions. Conditional on size, exporters are predicted to sell products of higher quality and at higher prices, pay higher wages and use capital more intensively. These predictions, although apparently intuitive, cannot be derived from single-attribute models of firm heterogeneity as they imply no variation in export status after size is controlled for. We find strong support for the predictions of our model in manufacturing establishment datasets for India, the U.S., Chile, and Colombia.
Number of Pages in PDF File: 64
Keywords: Productivity, quality, exports, firm heterogeneity
JEL Classification: F10, F12, F14working papers series
Date posted: August 5, 2009
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