The Impact of Trade on Organization and Productivity

Esteban Rossi-Hansberg and Lorenzo Caliendo

No 8535, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A firm's productivity depends on how production is organized given the level of demand for its product. To capture this mechanism, we develop a theory of an economy where firms with heterogeneous demands use labor and knowledge to produce. Entrepreneurs decide the number of layers of management and the knowledge and span of control of each agent. As a result, in the theory, heterogeneity in demand leads to heterogeneity in productivity and other firms' outcomes. We use the theory to analyze the impact of international trade on organization and calibrate the model to the U.S. economy. Our results indicate that, as a result of a bilateral trade liberalization, firms that export will increase the number of layers of management and will decentralize decisions. The new organization of the average exporter results in higher productivity, although the responses of productivity are heterogeneous across these firms. In contrast, non-exporters reduce their number of layers, decentralization, and, on average, their productivity. The marginal exporter increases its productivity by about 1% and its revenue productivity by about 1.8%.

Keywords: Communication costs; Cost function; Hierarchies; Knowledge; Management; Trade liberalization; Wage distribution (search for similar items in EconPapers)
JEL-codes: D21 D24 F12 F13 (search for similar items in EconPapers)
Date: 2011-08
New Economics Papers: this item is included in nep-bec, nep-eff and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Related works:
Journal Article: The Impact of Trade on Organization and Productivity (2012)
Working Paper: The Impact of Trade on Organization and Productivity (2011)
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