DP9067 Carry-Along Trade

Author(s): Andrew B. Bernard, Emily Blanchard, Ilke van Beveren, Hylke Vandenbussche
Publication Date: July 2012
Keyword(s): demand-scope complementarity, exporting, heterogeneous firms, intermediation, multi-product firms, productivity, sourcing
JEL(s): F12, F13, F14, L11
Programme Areas: International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9067

Large multi-product firms dominate international trade flows. This paper documents new facts about multi-product manufacturing exporters that are not easily reconciled with existing multi-product models. Using novel linked production and export data at the firm-product level, we find that the overwhelming majority of manufacturing firms export products that they do not produce. Three quarters of the exported products and thirty percent of export value from Belgian manufacturers are in goods that are not produced by the firm, so-called Carry-Along Trade (CAT). The number of CAT products is strongly increasing in firm productivity while the number of produced products that are exported is weakly increasing in firm productivity. We propose a general model of production and sourcing at multi-product firms. While the baseline model fails to reconcile the relationships between firm productivity and the numbers of exported products observed in the data, several demand and supply-side extensions to the model are more successful. Looking at export price data, we find support for a novel theoretical extension based on demand-scope complementarities.