International Economic Issues
Heterogeneous Firms
Chahir Zaki
[email protected]
Outline
1. Introduction
2. Stylized Facts
3. An Overview of Melitz Model
Outline
1. Introduction
2. Stylized Facts
3. An Overview of Melitz Model
1. Introduction
• New trade theories are twofold:
– Oligopolistic models
– Monopolistic competition models
• Early 2000:
– Melitz (2003), Melitz & Ottaviano (2008), Chaney (2008)…
– Monopolistic competitive models with heterogeneous firms
– “New new” trade theory
1. Introduction
• Pro-competitive effect is clearly something we expect to see
in a comprehensive trade theory
• More, DSK framework assumes that all firms are the same: all
of them export and have the same performances abroad…
– At odd with empirical evidence: exporting is for a few
– At odd with policy-oriented issues related to firms’ competitiveness
Outline
1. Introduction
2. Stylized Facts
3. An Overview of Melitz Model
2. Firms in international trade
•
Repeated evidence on the difficulty faced by firms
aiming to enter foreign markets
– Data for: USA, France, Ireland, Columbia, Mexico, China…
– Export is definitively for the few… and the best:
• Only a small subset of firm export
• Among exporters, only a few export to many countries
• Exporter are:
– Bigger, more productive, pay higher wage…
2. Firms in international trade:
exporting is for the few
•
•
•
•
Bernard, Eaton, Jensen
and Kortum
US plant data for 1992
Only 18% of plants export
something
Mean Exporter sells
only 14% of its output
2. Firms in international trade:
exporting is for the few
•
Mayer & Ottaviano (“Happy few” report)
•
Evidence from several EU countries
– Exporters are the few
– Most exporters are “small ones”
– Most countries’ exports are driven by a small fraction of big exporters
2. Firms in international trade:
exporting is for the few
•
The concentration of exports is much stronger than employment
2. Firms in international trade:
exporting is for the few
•
Top 1% of French exporters make 68% of exports
2. Firms in international trade:
exporting is for the few
•
Most exporters export to a very small numbers of countries (France)
2. Firms in international trade:
exporting is for the few
•
Firms exporting to more than 10 countries account for 85.44% of total
exports
2. Firms in international trade:
exporting is for the best
•
Exporters are bigger,
pay higher wage,
are more capital
intensive
2. Firms in international trade:
exporting is for the best
•
Exporters are bigger, pay higher wage, are more capital intensive
•
Exporters
are more productive
2. Firms in international trade:
exporting is for the best
•
Exporters
are more productive
2. Firms in international trade:
Trade margins
•
Total trade can be decomposed into the # of shipments, the mean
quantity exported and the mean price
Extensive margin Intensive margin
2. Firms in international trade:
Trade margins
It is easier to
export to large
and proximate
markets…
… and to those
sharing some
cultural and
historical links
2. Firms in international trade:
Trade margins
Extensive margin (products)
It is easier to
export more
products to large
and proximate
markets…
… and to those
sharing some
cultural and
historical links
2. Firms in international trade:
Trade margins
Extensive margin (products)
On easy market,
the mean
exported value is
smaller:
It is probably a
composition
effect (more
small firms in
easy markets)
2. Firms in international trade:
Trade margins
Intensive margin (price)
Mean price is
(slightly) larger
on easy markets
2. Firms in international trade
•
These findings suggest that the most productive firms selfselect into export markets
•
The extensive margin of trade (i.e., the number of firms
selling in each market) plays a significant role in explaining
trade flows.
•
Standard DSK model (or HK models) does not feature these
facts
Outline
1. Introduction
2. Stylized Facts
3. An Overview of Melitz Model
3. Outline of the Melitz (2003) Model
• Firms use labor to produce varieties of manufacturing good
• Firms enter a market by paying a sunk entry cost
• Firms observe their productivity j from a distribution g(j)
• There is a fixed cost of producing and a fixed cost of exporting
• Firms decide whether to produce or exit the industry
• If firms produce, they decide whether to serve only the domestic market
or also to export
• Exogenous probability of firm death
25
3. The Melitz model
• We have three groups of firms:
– Unlucky firms which draw a productivity φ < φ* exit
immediately the market, before starting the production.
They receive π(φ)=0… hence making a loss once the sunk
cost is taken into account.
– very lucky firms. All Firms with φ > φ* receive π(φ)>0. But
some of them have a productivity such that π(φ)>wfE , so
that they make positive profits net of the sunk cost of
entry.
– Less lucky firms, have π(φ)>0 and enter the market, but
have a productivity such that π(φ)<wfE.
3. The Melitz model
Produce with π>0
But global loss
Exit and
global loss -fE
Produce
with global gain
Profits and Productivity with no Trade
pi
pi(j) No Trade
- fi
.
.
ji
jiA*
Produce
Exit
28
Trade Liberalization in the Melitz
Model
pi(j) Trade
pi
pi(j) No Trade
- fi
.
..
.
jiCT* jixCT*
jiA*
Domestic
Market
Exit
29
Export
ji
References
• Lecture notes of Matthieu Crozet (2013)
• Melitz (2003)
• Krugman, Obsfeld and Melitz (2012),
Intenational Economics, Pearson Education.
Thanks for your attention