Productivity, pricing power, and exports
Atsuyuki Kato 25 November 2014
A large literature shows the importance of firm heterogeneity in determining trade patterns. This column discusses policy implementation issues related to the ‘new new trade theory’. The nature of an export good – be it consumption or production oriented – influences the importance of firm productivity in the export decision. The relationship between productivity and markups also varies across industries; pro-export policies must take account of this, lest they exacerbate distortion.
In the last decade many economists and policymakers have been interested in the relationship between firm heterogeneity and exports. As economies globalise , it has become important to understand this relationship in order to devise effective industrial policies.
firm heterogeneity, exports, trade policy
Sourcing foreign inputs to improve firm performance
Maria Bas, Vanessa Strauss-Kahn 14 July 2014
The rise of trade in intermediate inputs is well documented, but its role in shaping domestic economies is not yet completely understood. This column presents evidence from French firms on the effects of importing intermediate inputs. Firms importing more varieties of intermediate inputs increased their productivity and exported more varieties. Foreign inputs from the most advanced economies have the strongest effect on firm productivity, but imported inputs from all countries help raise the number of export varieties.
Should trade policy fight or promote imports of intermediate inputs? While several studies have shown the recent increase in imports of intermediate goods, their role in shaping domestic economies is not yet completely understood. Following the work of Feenstra and Hanson (1996), a large literature focuses on the impact of imported intermediate inputs on employment and inequality. It concludes that, like outsourcing, imported intermediate inputs have a role (although limited) in explaining job losses and wage reductions.
employment, productivity, wages, Inequality, trade, exports, outsourcing, imports, global value chains, Intermediate inputs
Globalisation, job security, and wages
Kerem Cosar, Nezih Guner, James R Tybout 07 July 2014
Trade liberalisations are often accompanied by labour market reforms, making it difficult to isolate their effects. This column discusses the effects of trade liberalisation, globalisation, and labour-market reforms on the Colombian labour market. Reduced trade frictions increased cross-firm wage inequality and shifted the firm-size distribution rightward, with offsetting effects on overall wage inequality. Average income increased, but the gains were concentrated among employees of large, productive firms with access to export markets. Greater trade openness also increased job turnover.
How does increased openness to international trade affect workers’ wages and job security? This question is central to the public debate concerning the effects of globalisation, but convincing quantitative answers have been difficult to come by. One fundamental reason is that major trade liberalisation episodes have often coincided with labour reforms (Heckman and Pages 2004). Colombia is a case in point. As Figure 1 shows, this country experienced deindustrialisation, higher job turnover rates, and heightened wage inequality in the years following its 1986–1991 trade liberalisation.
International trade Labour markets
productivity, unemployment, globalisation, wages, trade liberalisation, Inequality, labour market reforms, exports, Colombia, job security
Eurozone external adjustment and real exchange rate movements: The role of firm productivity distribution
Filippo di Mauro, Francesco Pappadà 02 June 2014
Trade imbalances in the Eurozone require relative price adjustments. This column argues that the traditional ‘elasticity’ approach is lacking when thinking about the adjustment magnitude. Exports adjust when exporting firms sell more (intensive margin) and new firms start exporting (extensive margin). The extensive-margin reaction depends upon the fatness of firm-level productivity distributions. Surplus-country distributions have fatter tails than deficit countries, suggesting that the price adjustment magnitude may be larger than traditional calculations suggest.
A corollary of the Eurozone crisis has been an unusually large current-account surplus for the Eurozone as a whole, resulting from a combination of strong external demand and rapid readjustment of external accounts in the Eurozone countries that had previously accumulated large imbalances.
Europe's nations and regions Exchange rates
eurozone, exchange rates, productivity, imbalances, exports, rebalancing
High-end variety exporters defying distance: Macro implications
Julien Martin, Florian Mayneris 04 December 2013
While quality upgrading is always viewed positively in both policy and academic circles, little is known about the macro implications for countries of specialising in high-end varieties. This column presents evidence that high-end variety exporters are less sensitive to trade costs. This implies a greater geographic diversification of exports, which compensates for their higher sensitivity to demand shocks and smoothes aggregate volatility. It also increases export growth when business opportunities arise in distant markets.
Vox columns by Peter Schott (2007) and Fontagné et al. (2008) have argued that developed countries specialise in the production of high-end varieties – expensive varieties of a product which have specific attributes such as reputation, branding, or quality that make them appealing to consumers in spite of their higher price. A few papers have examined the implications of such a specialisation for the labour market (e.g. Verhoogen 2008). However, while policymakers and academics encourage specialisation in high-end varieties, the macroeconomic consequences have not yet been examined.
France, trade, exports, luxury goods
Exports and property prices: Are they connected?
Balázs Égert, Rafał Kierzenkowski 02 October 2013
Decreasing world market share in exports threatens France’s recovery. Traditional determinants of exports do not fully explain the downturn. This paper presents a novel explanation for France’s declining exports: the real-estate boom. Strong profitability in the construction industry, led by rising house prices, diverted capital and labour from export-intensive industries. These results suggest a strong warning against policies supporting property ownership as an end in itself.
A marked decline in France’s export-market shares
Europe's nations and regions International trade
France, housing, exports, real estate
Export-market exit during the crisis: Evidence from the UK
Holger Görg, Marina-Eliza Spaliara 13 September 2013
International trade declined dramatically during the Global Crisis. This column focuses on UK firms that exited from exporting during the Global Crisis. The evidence clearly points to the importance of financial factors. Firms that exited were more heavily indebted, less liquid, and faced higher firm-specific interest rates.
International trade declined dramatically during the Global Crisis (WTO 2012). Economists have offered various explanations for this (see Baldwin 2009):
Europe's nations and regions International trade
When Harry meets Sally: The buyer margins of firms’ exports
Jerónimo Carballo, Gianmarco I.P. Ottaviano, Christian Volpe Martincus 11 September 2013
Firm-level data has told us much about exporters, but little about export buyers. This column discusses new research that shows how buyer margins can be a critical channel through which trade policies influence aggregate exports. Reaching a larger number of buyers is an important vehicle of export expansion, both at the country level and at the firm level. As buyer margins are important, they should be incorporated into the assessment of policies such as export promotion and customs facilitation.
Locating a buyer is one of the most important barriers for firms trying to penetrate new markets (e.g., Kneller and Pisu 2011). Investment in gathering these data may be socially suboptimal because information can spill over to other companies. Unsurprisingly, governments around the world implement programmes to help firms find buyers. For example, the US Department of Commerce assists exporters in identifying and qualifying lead for potential buyers, both through general online matchmaking mechanisms and customised services (e.g., Gold Key Matching Service).
exports, export buyers
Preparing to export
Danielken Molina, Marc Muendler 27 May 2013
Exporting is essential for economic development. But can firms move from local sales to export sales? How do firms prepare for exporting? This column presents new research showing that worker mobility is an important mechanism by which exporter knowledge spreads through the economy.
Exporting is an essential feature of strategies for economic development for very good reasons. A large body of empirical evidence shows that exporters are larger, more productive, pay higher wages and hire more skilled workers (Bernard and Jensen 1995). But do firms move from local sales to export sales? What choices do firms make in preparation for exporting? How do these choices affect a firm’s future export performance?
Labour Markets, exports, firms
Why do large movements in exchange rates have small effects on international prices?
Mary Amiti, Oleg Itskhoki, Jozef Konings 19 February 2013
Why is it that large movements in exchange rates have small effects on international prices? What does this mean for a crisis-stricken Eurozone? Using firm-level data, this column presents new research that investigates this exchange rate ‘disconnect’. Evidence suggests that the prices of the largest firms – with their disproportionately large share of trade – are insulated from exchange rate movements. The international competitiveness effects of a euro devaluation are therefore likely to be modest, given major exporters’ reliance on global supply chains.
Exchange rate moves have surprisingly small effects on prices. This apparent ‘disconnect’ is one of the central puzzles in international macroeconomics. It is also a continual headache for policymakers who rely on exchange rates to accommodate the adjustment of global (current account) imbalances. The main mechanism is a change in relative prices that shifts expenditure towards countries whose currency has depreciated. If prices don’t respond sufficiently to exchange rates then neither do quantities, and the expenditure-switching role of exchange rates is diminished (see Engel 2003).
competitiveness, euro, exports, imports, Eurozone crisis