International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
Figure 17.1 Mark Melitz (1968 – )
1
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.2 Export orientation of US manufacturing firms, 2002
Export orientation of US manufacturing firms, 2002
Electrical Equipment Appliance
Computer and Electronic Product
Chemical Manufacturing
Machinery Manufacturing
Primary Metal Manufacturing
Transportation Equipment
Plastics and Rubber Products
Textile Mills
Paper Manufacturing
Leather and Allied Product
Beverage and Tobacco Product
Petroleum and Coal Products
Fabricated Metal Product
Textile Product Mills
Food Manufacturing
Nonmetallic Mineral Product
Wood Product Manufacturing
Apparel Manufacturing
Furniture and Related Product
Printing and Related Support
Miscellaneous Manufacturing
Average for US
manufacturing
0
5
10
15
20
25
percent of firms that export
30
35
40
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.3 Distribution by number of products and export destinations; USA, 2000
a. Share of exporting firms
b. Share of export value
92.2
100
80
60
40.4
40
11.9
20
3
0
4
5+
2
# countries
3
1
4
5+
80
60
40
20
3
0
2
1
Share of export value
Share of exporting firms
100
# products
4
5+
2
1
2
# countries
1
3
4
5+
# products
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
Figure 17.4 Simultaneous exporting and importing; US manufacturing, 1997
US manufacturing; exporting and importing per sector
70
diagonal
percent of firms that import
60
50
Leather and
Allied Product
Computer and
Electronic Product
40
regression line
30
20
Aggregate Manufacturing average
10
Printing and Related Support
0
0
10
20
30
40
percent of firms that export
50
60
70
4
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.5 Trade and the gravity equation: composition of imports and exports
Gravity, exports and imports; composition effects
0.31
-0.61
Log of distance (import)
-0.43
-0.73
0.84
-1.06
-1.14
Log of distance (export)
-1.36
-0.39
0.71
0.82
Log of GDP (import)
1.14
value per product per firm
# products
-0.25
# firms
0.52
value
-1.5
0.71
Log of GDP (export)
-1
-0.5
0.98
0
estimated elasticity
0.5
1
1.5
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.6 Exporter and FDI premia
Exporter and FDI premia; ratio of considered variable for exporters
over non-exporters or FDI makers over non-FDI makers
25
France export
France FDI
20
Belgium export
Belgium FDI
15
Norway export
Norway FDI
10
5
0
employment
value added
wages
capital intensity
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
Figure 17.7 Structure of the heterogeneous firms model
Unlimited pool of
potential entrants
Men firms try to enter
One-time entry costs fen
Involved labor cost = fenMen
equality in stationary equilibrium
Revelation of firmspecific productivity i
All uncertainty resolved
Monopolistic competition;
per period fixed costs f
and marginal cost 1/i
 positive profit if i > co
G(co)Men firms don’t make it to market
Exit if i < co
(1-G(co))Men firms enter the market
equality in stationary equilibrium
Exit through ‘bad luck’
probability 
M firms actually
produce goods
Total profit 
M
firms
exit
7
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.8 Impact of productivity and elasticity of substitution on firm profits
Impact of elasticity of substitution on firm profitability; R = P = 1, f = 5
20
firm profits with
elasticity of 6
15
firm profits with
elasticity of 5
firm profits
10
5
co,6
0
0
-5
-10
1
2
fixed cost f = 5
productivity
co,4
co,5
3
firm profits with
elasticity of 4
4
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.9 Cumulative distribution function and probability density function
cumulative distrubution
function (right-hand-scale)
distribution functions
2
1
g(x)
probability density
function (left-hand-scale)
1
G(x)
0
0
x
0
1
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.10 Ex ante productivity density function and ex post average productivities
Ex ante productivity density function and ex post averages
0.6
ex ante weighted
average productivity
eawa
ex ante density function g()
density
ex ante
average
productivity
eaav
cut-off level
co
share of
entrants that do
not produce
G(co)
ex post
average
productivity
epav
ex post weighted
average productivity
epwa
0
0
1
2
productivity level 
3
4
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.11 Equilibrium; impact of elasticity of substitution
Determination of equilibrium; impact of elasticity of substitution
1
ZCP condition
e=6
firm profits
ZCP condition
e=4
FE condition
co
0
0
1
2
productivity
3
4
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
Figure 17.12 Uniform distribution example
Uniform distribution example
0.4
ex post density
ex post
average
0.3
(m +co )/2
ex post
weighted
average
epwa
density
ex ante density
0.2
ex ante
weighted
average
eawa
0.1
cutoff
value
ex ante
average
co
m /2
m
0
0
1
2
productivity level
3
4
12
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
Figure 17.13 Impact of different ex ante distributions on equilibrium
b. Impact on phi tilde
a. Density of different distributions
c
phi tilde
1
b
c
a
density
a
b
b
2
c
a
0
0
0
2
productivity
4
0
2
productivity
13
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.13 Impact of different ex ante distributions on equilibrium
c. Impact on equilibrium
0.5
ZCPc
ZCPa
FEa
FEc
ZCPb
a
firm profit
c
b
FEa
FEb
ZCPc
0.0
0
productivity
3
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.14 Autarky and trade equilibrium
Autarky and trade equilibrium
0.4
ZCPautarky
firm profits
autarky equilibrium
ZCPtrade
trade
equilibrium
export cutoff
productivity
FE
autarky
cutoff
productivity
trade cutoff
productivity
0.0
0
productivity
4
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.15 Firm sales and profit in trade and autarky
a. Firm sales
8
autarky cutoff
productivity
trade cutoff
productivity
trade sales
firm sales
export cutoff
productivity
autarky sales
0
0
firm productivity
4
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
17
Figure 17.15 Firm sales and profit in trade and autarky
b Firm profit
0.8
autarky cutoff
productivity
trade cutoff
productivity
trade profit
firm profit
export cutoff
productivity
autarky profit
B
trade profit
A
0.0
0
firm productivity
4
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.16 Productivity distributions of Latin American firms, 2006
3
National
Exporting
density
National
Domestic
Foreign
Domestic
Foreign
Exporting
0
0
Normalized productivity by export- and ownership status
1
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
Figure 17.17 Firm productivity and mode of entry
Mode of entry
exit
domestic
export
FDI multinational
low
modest
high
very high
Firm productivity
19
International Economics: Theory, Application, and Policy, Ch. 17;  Charles van Marrewijk, 2012
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Figure 17.18 Comparative advantage, trade, and firm heterogeneity
Comparative advantage industry
A
B
C
Firm productivity
autarky
cutoff
trade
cutoff
export
cutoff
Comparative disadvantage industry
A
B’
C’
Firm productivity
autarky
cutoff
trade
cutoff
export
cutoff