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

47 Pages Posted: 3 Sep 2019

Multiple version iconThere are 2 versions of this paper

Date Written: July 18, 2019

Abstract

Firms are heterogeneous, even within narrowly defined sectors. This article 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 investigates the main implications of firm heterogeneity for trade by EU countries, presenting a set of stylized facts. On the one hand, exporting firms are larger, more productive and pay higher wages than non-exporting firms. Indeed, only these firms are able to bear export costs arising from 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 a few large firms varies across countries and sectors. On the other hand, engaging in trade boosts individual firms’ productivity growth via a number of channels and 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 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 (July 18, 2019). Bank of Italy Occasional Paper No. 506. Available at SSRN: https://ssrn.com/abstract=3446774 or http://dx.doi.org/10.2139/ssrn.3446774

Claire Giordano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Paloma Lopez-Garcia

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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