Firm Heterogeneity and the Geography of International Trade

The University of Nottingham, GEP Research Paper 2008/41

32 Pages Posted: 25 Jul 2009

See all articles by David Greenaway

David Greenaway

University of Nottingham - School of Economics

Joakim Gullstrand

Lund University - School of Economics and Management

Richard Kneller

University of Nottingham

Date Written: 2008

Abstract

A key distinction which has emerged from heterogeneous firm models of international trade is that of exporting at the intensive and extensive margins. Empirically however, the two are often conflated, leading to biased estimates of the impact of falling trade costs. This paper exploits detailed firm level data, which includes information on the destination of exports to investigate causal links between enterprise productivity and the number of markets a firm serves as well as the relative size of those markets. Our focus is Sweden’s Food and Beverage sector, which is not only highly open, but has been subject to policy induced changes in trade costs (as well as falling natural barriers) over our sample period. We have data on almost 10,000 firm / time / destination observations across 6 years and 138 destinations. Our results confirm that conflating adjustment at the internal and external margins does bias trade resistance effects. Combining detailed firm specific information with data on destination characteristics confirms the importance of a range of country specific characteristics (including exchange rate risk) and facilitates the estimation of both distance and market size elasticities, from firm level data.

Keywords: trade costs, firm characteristics, destination characteristics, market size, distance

JEL Classification: F19

Suggested Citation

Greenaway, David and Gullstrand, Joakim and Kneller, Richard, Firm Heterogeneity and the Geography of International Trade (2008). The University of Nottingham, GEP Research Paper 2008/41. Available at SSRN: https://ssrn.com/abstract=1438055 or http://dx.doi.org/10.2139/ssrn.1438055

David Greenaway (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 115 951 5469 (Phone)
+44 115 951 4159 (Fax)

Joakim Gullstrand

Lund University - School of Economics and Management ( email )

Tycho Brahes väg 1,
S-220 07 Lund, 223 63
Sweden

Richard Kneller

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

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