A model of firm heterogeneity in factor intensities and international trade

Abstract

Empirical evidence suggests that exporters -besides being more productive -are significantly more skilled labor intensive than non-exporters. In a setting which captures both these features, we show that the firm selection induced by trade liberalization works along two dimensions. First, export growth increases competition for skilled labor. This leads to the exit of some of the skilled labor intensive firms, while benefitting unskilled labor intensive ones. Second, within the group of firms with the same factor intensities, the reallocation of factors is towards the exporters. We show that the increased competition for skilled labor dampens the positive effect of trade liberalization on sector-wide TFP and real income.JEL classification numbers: F12, F16, L11.

Skills scarcity and export intensity

“…First, as already discussed, we contribute to the debate on the causes of the observed correlation between export conduct, wages and prices. The key contributions in this area combine firm heterogeneity in terms of factor‐neutral productivity differentials with a mechanism generating a skill‐biased composition of the labour force and a quality‐biased product choice in comparatively more productive firms (Epifani and Gancia 2006, Verhoogen 2008, Crinò and Epifani 2012, Kugler and Verhoogen 2012, Feenstra and Romalis 2014, Emami Namini et al 2015, Harrigan and Reshef 2015). Our model can account for the same patterns without the need to postulate a quality ranking for products or a ranking of labour types and without the need to postulate that high‐quality products are intensive in the employment of “high‐skill” labour types.The positive association between higher‐wage skills, higher‐priced products and greater export sales arises endogenously in our model as a result of differential skills endowments.…”

Immigration and the Slope of the Labor Demand Curve: The Role of Firm Heterogeneity in a Model of Regional Labor Markets

“…Using German employer-employee data, Brinatti and Morales (2021) provide evidence that big firms employ a higher share of immigrants than small firms, and accounting for this heterogeneity is crucial for correctly estimating the welfare effects of immigration. Emami Namini et al (2015) interpret firm heterogeneity in terms of factor intensity, and find that an increase in skilled competition due to migration can nullify the positive effects of trade liberalization on TFP and real income.…”