Granular Comparative Advantage

Cecile Gaubert and Oleg Itskhoki

No 24807, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Large firms play a pivotal role in international trade, shaping the export patterns of countries. We propose and quantify a granular multi-sector model of trade, which combines fundamental comparative advantage across sectors with granular comparative advantage embodied in outstanding individual firms. We develop an SMM-based estimation procedure, which takes full account of the general equilibrium of the model, to jointly estimate these fundamental and granular forces using French micro-data with information on firm domestic and export sales across manufacturing industries. We find that granularity accounts for about 20% of the variation in realized export intensity across sectors, and is more pronounced in the most export-intensive sectors. In turn, idiosyncratic firm dynamics accounts for a large share of the evolution of a country's comparative advantage over time. Governments face strong incentives to target trade policy at large individual foreign exporters, and to use lenient antitrust regulation at home to substitute for beggar-thy-neighbor trade policy.

JEL-codes: D20 D43 F10 F40 (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-bec, nep-eur and nep-int
Note: EFG IFM IO ITI
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Citations: View citations in EconPapers (45)

Published as Cecile Gaubert & Oleg Itskhoki, 2021. "Granular Comparative Advantage," Journal of Political Economy, vol 129(3), pages 871-939.

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