An Anatomy of International Trade: Evidence from French Firms

Abstract

We examine the sales of French manufacturing firms in 113 destinations, including France itself. Several regularities stand out: (1) the number of French firms selling to a market, relative to French market share, increases systematically with market size; (2) sales distributions are very similar across markets of very different size and extent of French participation; (3) average sales in France rise very systematically with selling to less popular markets and to more markets. We adopt a model of firm heterogeneity and export participation which we estimate to match moments of the French data using the method of simulated moments. The results imply that nearly half the variation across firms that we see in market entry can be attributed to a single dimension of underlying firm heterogeneity, efficiency. Conditional on entry, underlying efficiency accounts for a much smaller variation in sales in any given market. Parameter estimates imply that fixed costs eat up a little more than half of gross profits. We use our results to simulate the effects of a counterfactual decline in bilateral trade barriers on French firms.

Trade Theory with Numbers: Quantifying the Consequences of Globalization

“…Under the additional assumption that fixed exporting costs (if any) are paid in the destination country-c x ij = c x j , as in Eaton, Kortum, and Kramarz (2011)-one can show a stronger equivalence result. In that case, c x ij drops out of Equation (16).…”

“…The last ten years have seen an explosion of alternative microtheoretical foundations underlying gravity equations; see Eaton and Kortum (2002), Anderson and Van Wincoop (2003), Bernard, Eaton, Jensen, and Kortum (2003), Chaney (2008), and Eaton, Kortum, and Kramarz (2011). While new gravity models encompass a large number of market structures-from perfect competition to monopolistic competition with firm-level heterogeneity à la Melitz (2003)-and a wide range of micro-level predictions, they share the same macro-level predictions regarding the structure of bilateral trade flows as a function of bilateral costs.…”

“…The gravity equation (5) has been shown to hold under perfect competition, as in Eaton and Kortum (2002); under Bertrand competition, as in Bernard, Eaton, Jensen, and Kortum (2003); under monopolistic competition with homogeneous firms, as in Krugman (1980); and under monopolistic competition with firm-level heterogeneity, as in Chaney (2008), Arkolakis (2010), Arkolakis, Demidova, Klenow, and Rodríguez-Clare (2008), and Eaton, Kortum, and Kramarz (2011). Our goal in this subsection is not to describe each of these models in detail, but rather highlight the common features that will lead to a gravity equation as well as the key differences that may affect the magnitude of the gains from trade.…”

“…Koenig (2010) and Eaton, Kortum, and Kramarz (2011). When available, they offer a simple way to estimate the intensive margin elasticity, i.e., by how much the sales of a given set of firms respond to changes in trade costs, and the extensive margin elasticity, i.e., by how much the number of firms responds to changes in trade costs.…”

Firms’ main market, human capital, and wages

“…4 The facts and arguments in the recent trade literature with which our model is consistent can be summarized as follows. Firm heterogeneity is a prominent phenomenon that translates into substantial differences in export participation and number of output-markets across firms (see Eaton et al (2004Eaton et al ( , 2008; for a survey of this fast growing literature, see Bernard et al (2007)). Furthermore, describing the current patterns of trade requires considering quality differentiation.…”