Essays on firms dynamics and international trade

Resumen

This thesis focuses on firm dynamics and international trade, and the link between them. During the last decade, extensive researches have been done on firm dynamics, especially on productivity, firms¿ growth and innovation. Here, it is deeply focused on productivity, innovation and trade. There are huge number of papers that have already reported productivity gains from international trade or role of productivity in firm¿s selection and growth. They all try to answer the following well-known questions: ¿Does productivity determine firms¿ selection and growth?¿; ¿Are there productivity gains from opening to trade?¿ Here, we may add some other questions: What is the effect of trade on high-tech and low-tech firms? Does investing in innovation activities have any effect on productivity? The point is that in the most of previous works, the effect of trade on productivity and demand has been mixed (due to lack of data on firm level prices). If using previous results misdirects firm dynamics or trade effect on firms¿ productivity, there may be few things that can be directed by a better measure of productivity and accessing to a rich data set, ESEE. The first chapter, addresses estimation of firm level productivity and the link between productivity and product value with firms performance by using information on firm level prices. Following Foster et al. (2008), a unique data set is employed to disentangle the role of productivity on manufacturing firms performance. Productivity of the firm is decomposed to technical component and product value component. We find that product value component is significantly as important as TFP shocks in firm performance and turnover, however the degree of response to output and prices is longer and larger for TFP shocks. Olley and Pakes (1996) method, for estimating the parameters of the production function, is extended to include other endogenous variables that impact on productivity like firms¿ R&D expenses. Our results show that both exporters and MNEs (multinational enterprises) have higher productivity and product values. The role of product value is, however, more important for accessing to foreign markets. Using Physical and Revenue TFPs to evaluate trade openness on firms¿ performance shows that previous literature exaggerates the role of trade in firms¿ productivity, and distorts its effect on demand side. This chapter also investigates the effect of R&D expenditures on firm level productivity, and the link between firm innovation activities and productivity. Results show that those firms that invest in R&D activities have higher productivity comparing to other firms and firms with low technical efficiency or high product value are more likely to undertake product innovation, but firms that have high technical efficiency or high product value are more likely to perform process innovation. In the last chapter of thesis, a two-country general equilibrium model is studied that jointly addresses the decision of heterogeneous firms to serve foreign market either through export or foreign direct in- vestment (FDI) and their technological choices. In equilibrium, only the more productive firms (Exporters and FDIs) choose to serve in foreign markets and the most productive firms will further choose to upgrade their technology. In addition, as trade liberalization takes place, the cut off productivity of exporters increases and the cut off productivity of foreign-owned firms decreases. Finally, foreign-owned firms with low level technology leave the market more than those adopting high technology. ESEE is employed to verify the effect of openness on firm level productivity. Results show that tariffs reduction, in average, decreases low-tech FDIs by 4% to 6% but there is not any significant effect on high-tech foreign-owned firms from 1990 to 2009.