Comparative Advantage, Firm Heterogeneity, and Selection of Exporters
La Follette School of Public Affairs
February 1, 2010
La Follette School of Public Affairs Working Paper No. 2010-005
This paper investigates how the fraction of exporting firms among domestic firms in a country differs across industries, depending on a country’s comparative advantage. A model, which extends work by Melitz (2003) and Bernard, Redding and Schott (2007), describes an economy that comprises two countries asymmetrically endowed with two production factors, many industries differing in the relative intensity of the two production factors, and a continuum of firms differing in productivity. The model predicts a comparative advantage driven pattern of the exporter selection: the fractions of exporting firms among all domestic firms are ranked according to the order of industries’ relative intensities of a production factor with which the country is relatively well-endowed. This quasi-Heckscher-Ohlin prediction about the exporter fraction is empirically tested using data from the manufacturing censuses of Chile, Colombia, India, and the United States. The result of the analysis shows that the correlation between the exporter fractions and industry skill intensities is larger, or more positive, for a country with higher skilled-labor abundance, which confirms the theoretical prediction and demonstrates the role of comparative advantage in exporter selection.
Number of Pages in PDF File: 82
Keywords: Comparative Advantage, Heckscher-Ohlin, Exporter Selection, Productivity Heterogeneity
JEL Classification: F11, F12, L11working papers series
Date posted: February 23, 2010
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