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We develop a monopolistically competitive model of trade with firm heterogeneity - in terms of productivity differences - and endogenous differences in the 'toughness' of competition across markets - in terms of the number and average productivity of competing firms. We analyze how these features vary across markets of different size that are not perfectly integrated through trade; we then study the effects of different trade liberalization policies. In our model, market size and trade affect the toughness of competition, which then feeds back into the selection of heterogeneous producers and exporters in that market. Aggregate productivity and average markups thus respond to both the size of a market and the extent of its integration through trade (larger, more integrated markets exhibit higher productivity and lower markups). Our model remains highly tractable, even when extended to a general framework with multiple asymmetric countries integrated to different extents through asymmetric trade costs. We believe this provides a useful modeling framework that is particularly well suited to the analysis of trade and regional integration policy scenarios in an environment with heterogeneous firms and endogenous markups.
We estimate international technology spillovers to U.S. manufacturing firms via imports and foreign direct investment (FDI) between 1987 and 1996. In contrast to earlier work, our results suggest that FDI leads to substantial productivity gains for domestic firms. The size of FDI spillovers is economically important, accounting for about 11 percent of productivity growth in U.S. firms between 1987 and 1996. In addition, there is some evidence for import-related spillovers, but it is weaker than for FDI spillovers. The paper also gives a detailed account of why our study leads to results different from those found in previous work. This analysis indicates that our results are also likely to apply to other countries and periods.
This paper investigates the extent to which productivity growth is the result of turnover - the process that shifts output from one firm to another as a result of the competitive process. Turnover occurs because some firms gain market share and others lose it. Some turnover is due to entry and exit. The other part arises from growth and decline in incumbent continuing producers. The paper proposes a method for measuring the impact of plant turnover on productivity growth and outlines how this contribution has changed in Canada as a result of substantial trade liberalization in the 1990s.
No stable, predictable correlations have emerged in studies of how trade policy affects productivity growth but market concentration seems to be an important factor. Research also suggests that increased foreign competition tends to induce cuts in plant size, may improve technical efficiency, and appears not to be closely linked with firm entry patterns.
Trade theory in the Krugman tradition predicts a positive correlation between market size and countries' total factor productivity (TFP). However, in the data, there is no such correlation. Models with heterogeneous firms and selection can reconcile theory and empirics, when the degree of external economies of scale is lower than assumed in the standard CES case. Realistically, larger countries have an over-proportionate share of firms. With export selection, these countries have more input varieties available, but they also have a lower average productivity of firms. Which of these effects dominates depends on the degree of external economies of scale.
Measuring Economic Growth and Productivity: Foundations, KLEMS Production Models, and Extensions presents new insights into the causes, mechanisms and results of growth in national and regional accounts. It demonstrates the versatility and usefulness of the KLEMS databases, which generate internationally comparable industry-level data on outputs, inputs and productivity. By rethinking economic development beyond existing measurements, the book's contributors align the measurement of growth and productivity to contemporary global challenges, addressing the need for measurements as well as the Gross Domestic Product. All contributors in this foundational volume are recognized experts in their fields, all inspired by the path-breaking research of Dale W. Jorgenson. Demonstrates how an approach based on sources of economic growth (KLEMS – capital, labor, energy, materials and services) can be used to analyze economic growth and productivity Includes examples covering the G7, E7, EU, Latin America, Norway, China, Taiwan, Japan, Korea, India and other South Asian countries Examines the effects of digital, information, communication and integrated technologies on national and regional economies
We generalize Krugman's (1979) 'new trade' model by allowing for an explicit production chain in which a range of tasks is performed sequentially by a number of specialized teams. We demonstrate that an increase in market size induces a deeper division of labor among these teams which leads to an increase in firm productivity. The paper can be thought of as a formalization of Smith's (1776) famous theorem that the division of labor is limited by the extent of the market. It also sheds light on how market size differences can limit the scope for international technology transfers.
This sequel to Market Structure and Foreign Trade examines the new international trade's applied side. It provides a compact guide to models of the effects of trade policy in imperfectly competitive markets, as well as an up-to-date survey of existing knowledge, which is extended by the authors' useful interpretations of the results.
This dissertation's three essays investigate trade and productivity effects on firm behavior based on new heterogeneous-firms trade models in the case of Korea. In the first essay, firms' decision to export in the case of Korean manufacturing industries is examined, where the change in firms' productivity before and after exports are analyzed. In particular, two common hypotheses of export decision - self-selection and learning-by-exporting- are tested using a dynamic model of firm export behavior and a Korean firm-level panel database. Evidence of self-selection is found in only three out of eight industries, but that of learning-by-exporting is limited. Sunk-cost or previous-export-experience effect on the predicted export probability is relatively larger than that of firms' productivity and size. The second essay investigates the effect of trade cost changes on firms' entry and exit in Korean manufacturing. Empirical support is found for new trade theories' predictions on firm entry and exit, and the number of exporting firms, and changes in market share following trade-cost changes. However, Korean manufacturing appears to differ from some of the outcomes of the heterogeneous-firms theory, especially in the result that large firms are less likely to be a new exporter. Rather, smaller and less capital-intensive firms tended to enter the export market. In general, the results of this essay show that changing trade costs had important consequences for the structure of manufacturing activity in Korea. In the final essay, the differences in the scale economies of exporters and non-exporters in Korean manufacturing are investigated. Results from estimating a production function show that exporters face diseconomies of scale in four of five industries. A matching technique confirms the difference in returns to scale between exporters and non-exporters. The evidence that size and hence, scale economies may be less important for trade participation and gains from overseas market, bodes well for small or medium exporters. In summary, this dissertation has improved the understanding of the relationships among trade, productivity and firm behavior. The key determinant of firms' export behavior in the Korean context appears to be previous experience in overseas markets. Not surprisingly, the Korean government has invested heavily in lowering their firms' cost of accessing foreign markets. In industries where Korea has a comparative advantage, high productivity of firms appears to promote trade participation. However, productivity growth in other industries is low and falling, in some cases. A balanced approach to investments in productivity and export promotion would sustain and improve Korean manufacturing's competitiveness in global markets.