Trade Costs in Services. Firm Survival, Firm Growth and Implied Changes in Employment

Elisabeth Christen, Michael Pfaffermayr and Yvonne Wolfmayr

No 593, WIFO Working Papers from WIFO

Abstract: This paper provides new insight into the firm-level employment impacts of trade cost changes at the industry level in the Austrian services sector. We apply a two-part model of firm survival (exit) and firm growth. Separate regressions for firm entry rates at the industry-region level complete the picture of total trade-induced net job creation. We implement the trade cost measure introduced by Chen and Novy (2011) and base it on own estimates of industry specific substitution elasticities. Falling trade costs in the Austrian services sector over the period 2000 to 2014 resulted in net job creation of about 19,000 jobs accounting for 9.5 percent of overall job flows in the sector. The smallest and least productive firms contract while large and productive firms expand as predicted by theory. Most adjustments occur at the extensive margin due to changes in the probability of firm survival.

Keywords: Elasticity of substitution; Firm-level evidence; Gravity model; Heterogenous firms; Job flows; Services trade; Trade and employment; Trade costs (search for similar items in EconPapers)
Pages: 48 pages
Date: 2019-12
New Economics Papers: this item is included in nep-bec, nep-ent, nep-int and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Trade Costs in Services: Firm Survival, Firm Growth and Implied Changes in Employment (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:wfo:wpaper:y:2019:i:593

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