Firms' Exporting Behavior under Quality Constraints
We develop a model of international trade with export quality requirements and two dimensions of firm heterogeneity. In addition to "productivity", firms are also heterogeneous in their "caliber" -- the ability to produce quality using fewer fixed inputs. Compared to single-attribute models of firm heterogeneity emphasizing either productivity or the ability to produce quality, our model provides a more nuanced characterization of firms' exporting behavior. In particular, it explains the empirical fact that firm size is not monotonically related with export status: there are small firms that export and large firms that only operate in the domestic market. The model also delivers novel testable predictions. Conditional on size, exporters are predicted to sell products of higher quality and at higher prices, pay higher wages and use capital more intensively. These predictions, although apparently intuitive, cannot be derived from single-attribute models of firm heterogeneity as they imply no variation in export status after size is controlled for. We find strong support for the predictions of our model in manufacturing establishment datasets for India, the U.S., Chile, and Colombia.
Published Versions
“Product and Process Productivity: Implications for Quality Choice and Conditional Exporter Premia” (with Jagadeesh Sivadasan), Journal of International Economics, 91(1), pp. 53-67, September 2013. A previous version of this paper appeared as “Firms' Exporting Behavior under Quality Constraints”, Research Seminar in International Economics No. 628, September 2011.
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