We propose two distinct approaches to the measurement of industry upstreamness (or average distance from final use) and show that they yield an equivalent measure. Furthermore, we provide two additional interpretations of this measure, one of them related to the concept of forward linkages in Input-Output analysis. On the empirical side, we construct this measure for 426 industries using the 2002 US Input-Output Tables. We also verify the stability of upstreamness across countries in the OECD STAN database, albeit with a more aggregated industry classification. Finally, we present an application that explores the determinants of the average upstreamness of exports at the country level using trade flows for 2002.

Abstract:A large literature has shown that geographic frictions reduce trade, but has not clarified precisely why. In this paper we provide some insight into why such frictions matter by focusing on precisely what they matter for. We ask: what parts of trade do these frictions reduce most? Using data that tracks manufacturers' shipments within the United States on an exceptionally fine grid, we find that the pattern of shipments is extremely localized. Shipments within 5-digit zip codes, which have a median radius of just 4 miles, are 3 times larger than shipments outside the zip code. We decompose aggregate shipments into extensive and intensive margins, and show that distance and other frictions reduce aggregate trade values primarily by reducing the number of commodities shipped and the number of establishments shipping. Extensive margins are particularly important over very short distances. We consider two broad reasons for these facts and conclude that trade in intermediate goods is the most likely explanation for highly localized shipments and the dominant role of the extensive margin. In another significant finding, we find no evidence of state-level home bias when distances are measured precisely and trade is observed over a very fine grid.Acknowledgements: We thank the editor and two anonymous referees for very helpful comments. We also thank Jack Barron, Tim Cason, Michael Ferrantino, and John Ries for comments on an earlier draft. We thank Arnold Rezneck of the Center for Economic Studies for his help with the data. All errors are the responsibility of the authors. . Much of the research work occurred while Russell Hillberry was employed by the U.S. International Trade Commission. This research was supported by grants from Purdue CIBER and NSF.The research in this paper was conducted while the authors were Special Sworn Status researchers of the U.S. Census Bureau at the Center for Economic Studies. Research results and conclusions expressed are those of the authors and do not necessarily reflect the views of the Census Bureau. This paper has been screened to insure that no confidential data are revealed. Trade Responses to Geographic Frictions: A Decomposition Using Micro-Data January 2005Abstract: A large literature has shown that geographic frictions reduce trade, but has not clarified precisely why. In this paper we provide some insight into why such frictions matter by focusing on precisely what they matter for. We ask: what parts of trade do these frictions reduce most? Using data that tracks manufacturers' shipments within the United States on an exceptionally fine grid, we find that the pattern of shipments is extremely localized. Shipments within 5-digit zip codes, which have a median radius of just 4 miles, are 3 times larger than shipments outside the zip code. We decompose aggregate shipments into extensive and intensive margins, and show that distance and other frictions reduce aggregate trade values primarily by reducing the number of commodities shipped and the number of establishments ...

We propose two distinct approaches to the measurement of industry upstreamness (or average distance from final use) and show that they yield an equivalent measure. Furthermore, we provide two additional interpretations of this measure, one of them related to the concept of forward linkages. We construct this measure for 426 industries using the 2002 US input-output Tables. We also construct our measure using data from selected countries in the OECD STAN database. Finally, we present an application of our measure that explores the determinants of the average upstreamness of exports at the country level using trade flows for 2002.

We present an empirical implementation of a general-equilibrium model of international trade with heterogeneous manufacturing firms. The theory underlying our model is consistent with Melitz (2003). A nonlinear structural estimation procedure identifies a set of core parameters and unobserved firm-level trade frictions that best fit the geographic pattern of trade. Once the parameters are identified, we utilize a decomposition technique for computing general-equilibrium counterfactuals. We first assess the economic effects of reductions in measured tariffs. Taking the simple-average welfare change across regions the Melitz structure indicates welfare gains from liberalization that are nearly four times larger than in a standard trade policy simulation. Furthermore, when we compare the economic impact of tariff reductions with reductions in estimated fixed trade costs we find that policy measures affecting the fixed costs are of greater importance than tariff barriers. (JEL C68,F12)