Since the mid-1990s, researchers have used micro datasets to study countries' production and trade at the firm level and have found that exporting firms differ substantially from firms that solely serve the domestic market. Across a wide range of countries and industries, exporting firms have been shown to be larger, more productive, more skill- and capital-intensive, and to pay higher wages than nonexporting firms. These differences exist even before exporting begins and have important consequences for evaluating the gains from trade and their distribution across factors of production. The new empirical research challenges traditional models of international trade and, as a result, the focus of the international trade field has shifted from countries and industries towards firms and products. Recently available transaction-level U.S. trade data reveal new stylized facts about firms' participation in international markets, and recent theories of international trade incorporating the behavior of heterogenous firms have made substantial progress in explaining patterns of trade and productivity growth.

The unit values of US manufacturing imports vary widely within very narrowly defined products. In cross-section, unit values are higher for varieties exported by capital and skill abundant countries, and they increase with the capital intensity of exporters' production techniques. Over time, the same products increasingly are sourced from more disparate countries. These facts reject 'old' trade theory specialization across products but are consistent with such specialization within products: capital abundant countries use their endowment advantage to manufacture varieties that are superior in terms of quality or attributes to those produced by labor abundant countries. The facts are inconsistent with 'new' trade theory models that have producer price varying inversely with producer productivity because unit values are higher for the set of countries commonly thought to be more productive.

This paper examines the role of international trade in the reallocation of U.S. manufacturing activity within and across industries from 1977 to 1997. It introduces a new measure of industry exposure to international trade, motivated by the Heckscher-Ohlin model, which focuses on where imports originate rather than their overall level. Results demonstrate that plant survival as well as output and employment growth are negatively associated with the share of industry imports sourced from the world 's lowest-wage countries. Within industries, activity is reallocated towards capital-intensive plants. Plants are also more likely to alter their product mix (i.e. switch industries) in response to trade with low-wage countries. Plants altering their product mix switch to industries that are more capital and skill-intensive.JEL classification: F11, F14 , L25, L60

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