Essays on Firm-Level Responses to Globalisation

Leonardo Iacovone

Economics PhD Theses from Department of Economics, University of Sussex Business School

Abstract: This thesis analyses how Mexican firms responded to the challenges and opportunities of globalisation generated by the NAFTA reforms during the 19908. Using a unique firmlevel dataset that covers 85 percent of Mexican industrial output, and relying on recent advances in trade theory modeling of heterogenous firms, we examine firm-level responses to these reforms from different perspectives. After having described this dataset, in the first essay, we study the relationship between trade reforms and productivity and, relying on an innovative methodology to capture the overall impact of NAFTA, we show that NAFTA affected firms differently depending on their different "integration status". Building on the previous findings, in the second essay we develop a Schumpeterian growth model predicting that the impact of liberalisation on economic performance is asymmetric. We then test its prediction and confirm that firms that are further away from the "productive technological frontier" are less positively affected by the liberalisation. As NAFTA not only increased domestic competitive pressures but also expanded export opportunities, in the final two essays we concentrate on the behaviour of exporters. Our main findings show that plants that will export a particular product variety in the future experience an increase in the domestic unit value obtained for this variety two years before exporting starts, and this is accompanied by an increase in investment activity. Further, our stylised facts confirm that exporting is a relatively rare activity and document a significant degree of churning at the product level that takes place in response to declining trade costs. We also find evidence suggesting that firms' decisions to expand and drop products are influenced by what appear to be their "core competencies". Finally, we uncover that new exporters tend to "start small", and start exporting by introducing into foreign markets those products that they are already selling at home.

Date: 2008
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