Productivity and Firm Selection: Intra- vs International Trade

CORE Discussion Paper No. 2007/60

FEEM Working Paper No. 115.2009

39 Pages Posted: 6 Sep 2007

See all articles by Gregory Corcos

Gregory Corcos

Norwegian School of Economics (NHH) - Department of Economics

Massimo Del Gatto

CRENOS - Centre for North South Economic Research; 'Gabriele d'Annunzio' University of Chieti-Pescara - Faculty of Economics

Giordano Mion

University of Sussex - Department of Economics; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation

Date Written: August 2007

Abstract

We discuss how standard computable equilibrium models of trade policy can be enriched with selection effects without missing other important channels of adjustment. This is achieved by estimating and simulating a partial equilibrium model that accounts for a number of real world effects of trade liberalisation: richer availability of product varieties; tougher competition and weaker market power of firms; better exploitation of economies of scale; and, of course, efficiency gains via the selection of the most efficient firms. The model is estimated on E.U. data and simulated in counterfactual scenarios that capture several dimensions of European integration. Simulations suggest that the gains from trade are much larger in the presence of selection effects. Even in a relatively integrated economy as the E.U., dismantling residual trade barriers would deliver relevant welfare gains stemming from lower production costs, smaller markups, lower prices, larger firm scale and richer product variety. We believe our analysis provides enough ground to support the inclusion of firm heterogeneity and selection effects in the standard toolkit of trade policy evaluation.

Keywords: European integration, intra-national trade, firm-level data, firm selection, gains from trade, total factor productivity

JEL Classification: F12, R13

Suggested Citation

Corcos, Gregory and Del Gatto, Massimo and Mion, Giordano and Ottaviano, Gianmarco I.P., Productivity and Firm Selection: Intra- vs International Trade (August 2007). CORE Discussion Paper No. 2007/60; FEEM Working Paper No. 115.2009. Available at SSRN: https://ssrn.com/abstract=1012273 or http://dx.doi.org/10.2139/ssrn.1012273

Gregory Corcos (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

Massimo Del Gatto

CRENOS - Centre for North South Economic Research ( email )

Cagliari
Italy

'Gabriele d'Annunzio' University of Chieti-Pescara - Faculty of Economics ( email )

Faculty of Economics - Department of Economics
Viale Pindaro, 42
Pescara, 65127
Italy

Giordano Mion

University of Sussex - Department of Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

HOME PAGE: http://sites.google.com/site/giordanomionhp/

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation ( email )

Via Gobbi 5
Milan, 20136
Italy

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