DP11555 Global Firms

Author(s): Andrew B. Bernard, J Bradford Jensen, Stephen J. Redding, Peter K. Schott
Publication Date: October 2016
Keyword(s): firm heterogeneity, International Trade, multi-product firms, multinationals
JEL(s): F12, F14, L11, L21
Programme Areas: International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11555

Research in international trade has changed dramatically over the last twenty years, as attention has shifted from countries and industries towards the firms actually engaged in international trade. The now-standard heterogeneous firm model posits measure zero firms that compete under monopolistic competition and decide whether to export to foreign markets. However, much of international trade is dominated by a few "global firms", which participate in the international economy along multiple margins and account for substantial shares of aggregate trade. We develop a new theoretical framework that allows firms to have large market shares and to decide simultaneously on the set of production locations, export markets, input sources, products to export, and inputs to import. Using U.S. firm and trade transactions data, we provide strong evidence in support of this framework's main predictions of interdependencies and complementarities between these margins of firm international participation. Global firms participate more intensively along each margin, magnifying the impact of underlying differences in firm characteristics, and increasing their shares of aggregate trade.