Heterogeneous Firms and International Trade: The role of productivity and financial fragility

Tiziana Assenza, Domenico Delli Gatti, Jakob Grazzini and Giorgio Ricchiuti

No def042, DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: In his seminal paper, starting from the premise that productivity is heterogeneous across firms, Melitz (2003) nicely accounts for the stylized fact that the level of individual productivity is key in determining the capability of a firm to export. In this paper we build a model along Melitz’s lines to show that also financial capacity, captured by the level of individual net worth, affects the behaviour of firms on international markets. In our framework, in fact, the decision to export depends on both productivity and net worth, and both are heterogeneous across firms. We show that firms with low productivity may still be able to penetrate foreign markets provided they have enough net worth to incur the cost of exporting. However, even a really high net worth may not guarantee the presence in both domestic and foreign markets if the firm does not have a minimum level of productivity. Finally, we explore the effects of changes in transport costs, fixed costs for exporters and the financial constraints.

Keywords: Productivity; Net Worth; International trade; Heterogeneous firms. (search for similar items in EconPapers)
JEL-codes: E44 F12 F14 F21 (search for similar items in EconPapers)
Pages: 23
Date: 2016-06
New Economics Papers: this item is included in nep-bec, nep-int and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Related works:
Working Paper: Heterogeneous Firms and International Trade: The Role of Productivity and Financial Fragility (2016)
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