Granular Comparative Advantage

64 Pages Posted: 16 Jul 2018

See all articles by Cecile Gaubert

Cecile Gaubert

University of California, Berkeley - Department of Economics

Oleg Itskhoki

Princeton University - Department of Economics

Date Written: July 2018

Abstract

Large firms play a pivotal role in international trade, shaping the export patterns of countries. We propose and quantify a granular multi-sector model of trade, which combines fundamental comparative advantage across sectors with granular comparative advantage embodied in outstanding individual firms. We develop an SMM-based estimation procedure, which takes full account of the general equilibrium of the model, to jointly estimate these fundamental and granular forces using French micro-data with information on firm domestic and export sales across manufacturing industries. We find that granularity accounts for about 20% of the variation in realized export intensity across sectors, and is more pronounced in the most export-intensive sectors. In turn, idiosyncratic firm dynamics accounts for a large share of the evolution of a country's comparative advantage over time. Governments face strong incentives to target trade policy at large individual foreign exporters, and to use lenient antitrust regulation at home to substitute for beggar-thy-neighbor trade policy.

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Suggested Citation

Gaubert, Cecile and Itskhoki, Oleg, Granular Comparative Advantage (July 2018). NBER Working Paper No. w24807. Available at SSRN: https://ssrn.com/abstract=3214351

Cecile Gaubert (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Oleg Itskhoki

Princeton University - Department of Economics ( email )

Fisher 306
Princeton, NJ 08544-1021
United States
+1 (609) 258-5493 (Phone)

HOME PAGE: http://www.princeton.edu/~itskhoki

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