Trade, Productivity and (Mis)Allocation

76 Pages Posted: 1 Jan 2020 Last revised: 8 Oct 2021

See all articles by Antoine Berthou

Antoine Berthou

Banque de France

John Jong-Hyun Chung

Auburn University

Kalina Manova

University College London - Department of Economics

Charlotte Sandoz Dit Bragard

International Monetary Fund (IMF)

Multiple version iconThere are 3 versions of this paper

Date Written: December 10, 2019

Abstract

We examine the gains from trade in the presence of firm heterogeneity and resource misallocation. Theoretically, we show that measured domestic aggregate productivity (Φ) captures the effective productive capacity of an economy with or without distortions. However, it is generally not monotonic with welfare (W), which depends on the degree of misallocation and the prices of both domestic and imported varieties. Under allocative efficiency, bilateral and export liberalizations increase W and Φ, but import liberalization has ambiguous effects. Misallocation can amplify, dampen or reverse these gains from trade. Empirically, we then use unique new data on 14 European countries and 20 industries in 1998-2011, and establish that exogenous rises in export demand and import competition both increased Φ in this sample. Further empirical analysis suggests that these effects operated through reallocations across firms in the presence of distortions, with important asymmetries between export and import shocks: (i) Both export and import expansion increased effective average firm productivity, but the former also shifted activity towards firms with higher effective productivity, while the latter acted in reverse. (ii) Both trade shocks increased minimum effective firm productivity, but the latter was not a sufficient statistic for Φ. (iii) Efficient institutions, factor and product markets amplified the gains from import competition, but dampened those from export access.

Keywords: International trade, export demand, import competition, productivity, allocative efficiency, misallocation

JEL Classification: F10, F14, F43, F62, O24, O40, O47

Suggested Citation

Berthou, Antoine and Chung, John Jong-Hyun and Manova, Kalina B. and Sandoz Dit Bragard, Charlotte, Trade, Productivity and (Mis)Allocation (December 10, 2019). Available at SSRN: https://ssrn.com/abstract=3502471 or http://dx.doi.org/10.2139/ssrn.3502471

Antoine Berthou

Banque de France ( email )

Paris
France

John Jong-Hyun Chung

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States

Kalina B. Manova (Contact Author)

University College London - Department of Economics ( email )

Drayton House, 30 Gordon Street
30 Gordon Street
London, WC1H 0AX
United Kingdom

Charlotte Sandoz Dit Bragard

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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