Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics

Working Paper
03-4
May 2003

This paper provides the first empirical examination of the relationship among industry trade costs, firm reallocation, and industry productivity in the United States. A key contribution of this analysis is the connection of plant-level US manufacturing data to industry-level measures of trade cost changes. The authors find that aggregate industry productivity rises as trade costs fall. They also find that the probability of plant death is higher in industries experiencing declining trade costs, as is the probability of successfully entering the export market.