Firm Heterogeneity and Trade in EU Countries: A Cross-Country Analysis

48 Pages Posted: 25 Jun 2019

Date Written: June 19, 2019

Abstract

Firms are heterogeneous, even within narrowly defined sectors. This paper surveys the relevant theoretical and empirical literature on firm heterogeneity and external trade. By innovatively exploiting rich cross-country micro-aggregated data sourced from the ECB Competitiveness Research Network (CompNet), this study then investigates the main implications of firm heterogeneity for trade of EU countries, showing a set of stylised facts. On the one hand, exporting firms are larger, more productive and pay higher wages than non-exporting firms. Only these firms are able to bear export costs, related to various factors, such as tariff and non-tariff trade barriers, the quality of the legal system or access to finance. Hence, only few enterprises actually export, and the intensity of aggregate export concentration within few large firms varies across countries and sectors. On the other hand, opening to trade boosts individual firms’ productivity growth, via a number of channels, and also enhances allocative efficiency across firms, in turn increasing aggregate productivity growth. One of the main standard determinants of export growth, namely changes in the real effective exchange rate, impacts aggregate performance differently across countries and sectors, depending on sectoral composition and on firm characteristics within a given sector.

Keywords: trade, firm heterogeneity, productivity, real effective exchange rates

JEL Classification: F14, L25

Suggested Citation

Giordano, Claire and Lopez-Garcia, Paloma, Firm Heterogeneity and Trade in EU Countries: A Cross-Country Analysis (June 19, 2019). ECB Occasional Paper No. 225 (2019); ISBN 978-92-899-3690-3. Available at SSRN: https://ssrn.com/abstract=3407130

Claire Giordano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Paloma Lopez-Garcia (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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