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Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
How do multi-product exporters react to achange in trade costs?
Antoine Berthou Lionel Fontagne
Les entreprises francaises et europeennes dans la concurrenceinternationale
Banque de France, 25 novembre 2009
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Introduction
Few - but large - firms concentrate a high proportion of countries’exports (Eaton, Kortum and Kramarz, 2004 - Mayer andOttaviano, 2007)
These firms are typically multi-product exporters:
Iacovone and Javorcik (2008) : 62% of Mexican firms exporta single product category
Bernard, Jensen, Redding and Schott (2007)⇒ only 42% of US firms export a single product category
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
What about French exporters?
Figure: Distribution of the number of product categories exported byFrench firms over all destinations, 1998
⇒ 70% of French exporters do export more than a single productcategory
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
What about French exporters on each destination?
Figure: Distribution of the number of product categories exported byFrench firms on individual destination, 1998
⇒ 50% of exporters are multi-product on each destination
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
What have we learnt recently?
Main feature: trade statistics at firm level dominated by zeros:
Only few firms export, over the whole sample of domesticfirms
Exporters sell abroad only few product categories, among allpossible product categories
Exporters reach only few of the potential destinations
But: a large proportion of firms export several goods categories toeach destination
Contrasts with New Trade Theory: all firms are expected tosell a single variety to all destinations
New theoretical frameworks have been developed to allow forfirm and product selection (Melitz, 2003; Eckel and Neary2008; Bernard Redding and Schott, 2009)
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
How do firms adjust their exports consecutive to a change intrade costs ?
Our objective is to measure the relative contribution firm selection,product selection, and value of exports by product
First, we consider the adjustment of firm-level exports in thecross section: effect of distance
Second, we provide evidence about the dynamic adjustment offirm-level exports: euro adoption in 1999
We make use of French exports data at the firm level (Frenchcustoms) and firms characteristics (EAE business survey)
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Preview of the results
We first consider the effect of distance on firm-level exports
Distance has a negative effect on all components of firms’exports
This contrasts with previous findings where the effect ofdistance on the intensive margin is ambiguous
Second, we use Euro adoption in 1999 as a natural experiment
Elimination of transaction costs and nominal exchange ratevolatility was expected, as well as increased competition
Firms react to a decrease in trade costs over time essentiallyby adding or dropping products on the export market
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Main data sources
French customs data at the firm and product level
Manufactured exports at the firm level over the 1995-2003period, with CN 8-digit product disaggregation (about 8,000product categories)Firms identified by SIREN numberWe keep the main 50 destinations, EU15 or OECDdestinations
EAE business survey :
Report firm-level information about main activity, valueadded, employment, capital stock ... for firms with more than20 employeesWe use this information to estimate Total Factor Productivity(TFP) of exporters, according to Olley-Pakes methodology
Customs and EAE data matched with firms’ SIRENidentification numberBerthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Decomposition of aggregate trade flows:
Firm-level exports:
X fj = N fjp × x fj
X fj : value of exports by firm f to destination j
N fjp : number of NC8 product categories exported by firm f to
destination j
x fj : average value of exports by product category for firm fand destination j .
Total exports:
X j =∑
f
N fjp × x fj
X j : total value of French exports to destination j
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Alternatively, French exports to any destination j can bedecomposed as follows:
X j = N jfp × x j
N jfp is the number of individual shipments from France to
destination j
x j is the average value of exports by individual shipment
A shipment is defined as a firm exporting a single CN8product category to a given destination
Importantly, x j 6= x fj :
x fj : composition effect due to scope of products exported byfirm
x j : composition effect due to product and firm scope
⇒ Definition of the intensive margin matters for the analysis of theeffects of trade costs
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Distance and the margins of French exports:
We estimate a simple gravity equation on the number individualshipments (N j
fpt) and the average value by individual shipment
(x jt): by pooling data over the 1995-2004 period:
ln(N jfpt) = µ0 + µ1ln(RGDPjt) + µ2ln(Distj) + µ3κt + εjt
ln(x jt) = ν0 + ν1ln(RGDPjt) + ν2ln(Distj) + ν3κt + εjt
1 exporting country, 10 years, 50 destinations
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Distance and the margins of French exports
Table: Trade margins, pooled data (1995-2004)
Sample All destinationsEstimator OLS
Dependent variable ln(Njfpt
) ln(x jt )
RGDPjt 0.580*** 0.262***(0.025) (0.018)
Distj -0.772*** -0.026(0.026) (0.016)
Nb observations 500 500R-squared 0.73 0.45
⇒ Distance has a negative effect on the number of individualshipments⇒ No effect of distance on the average value of exports byindividual shipment
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Distance and firm-level exports:
Absence of effect of distance on the intensive margin, atcountry-level, may be related to composition effect due to firmselection:
As trade costs decrease, demand addressed to each varietyincreases and new firms enter
New exporters typically export small volumes
Firm-level estimates enable to get rid of between firmscomposition effect
This analysis requires to decompose firm-level exports intocomponents:
E (X fjt ) = Prob(X fj
t > 0)× E (N fjpt |X
fjt > 0)× E (x fj
t |Xfjt > 0)
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Effect of distance on firm selection ⇒ logit
T fjt = α0+α1ln(RGDPjt)+α2ln(Distjt)+α3ln(TFPft−1)+α4κk +α5κt+εfjt
Effect of distance on (i) the number of products, and (ii)average value per product: ⇒ Poisson for positive export values
N fjpt = β0+β1ln(RGDPjt)+β2ln(Distjt)+β3ln(TFPft−1)+β4κk +β5κt +εfjt
x fjt = γ0 +γ1ln(RGDPjt)+γ2ln(Distjt)+γ3ln(TFPft−1)+γ4κk +γ5κt +εfjt
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Table: Firm-level exports, pooled data (1995-2004)
Sample All destinationsEstimator Logit Poisson Logit Poisson
Dependent variable Tfjt N
fjpt x
fjt T
fjt N
fjpt x
fjt
Distj -0.508*** -0.229*** -0.314*** -0.397*** -0.232*** -0.395***(0.102) (0.023) (0.072) (0.063) (0.018) (0.040)
RGDPjt 0.206*** 0.105*** 0.373*** 0.276*** 0.146*** 0.405***(0.072) (0.024) (0.058) (0.057) (0.020) (0.038)
TFPft−1 0.395*** 0.293*** 0.642***(0.016) (0.014) (0.019)
Nb observations 7,505,486 3,013,935 3,013,876 1,729,113 1,020,152 1,020,130Fixed effects year year, industry
⇒ Controlling for TFP reduces the sample of firms (+20 thresholdin EAE database)⇒ Estimates confirm the negative effect of distance on the 3components of firm-level exports⇒ Negative effect on the product intensive margin, at firm level,suggests that composition effect due to firm selection is high
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Euro adoption as a natural experiment :
We now use euro adoption as a natural experiment to estimate theeffect of a change in trade costs over time for a fixed set ofdestinations
Two effects can be expected:
1 Decrease in trade costs due to the elimination of nominalexchange rate volatility and transaction costs
2 Rise in competition on domestic and export markets
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Difference-in-difference methodology
“Treated” destinations are the ones that adopted the singlecurrency in 1999
Austria, Finland, Germany, Italy, Ireland, The Netherlands,Spain, Portugal, Belgium + Luxembourg
Greece (joined in 2001) is removed so that we identify a singleshock over the period
“Control group”: EU15 destinations that do not participate to theeuro
United-Kingdom, Denmark and Sweden + other OECDdestinations
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Results: Euro adoption and firm-level adjustment
Table: Euro effects on the components of firm-level exports
Sample OECD EU15Estimator Cond. FE logit Cond. FE poisson Cond. FE logit Cond. FE poisson
Dependent variable Tfjt N
fjpt x
fjt T
fjt N
fjpt x
fjt
EZ1999−2003 -0.134* 0.019 0.013 -0.058 0.000 -0.009(0.080) (0.015) (0.032) (0.045) (0.010) (0.041)
RERjt -1.570*** -0.229*** -0.317* -0.735 -0.167* -0.847*(0.479) (0.084) (0.189) (0.783) (0.086) (0.445)
RGDPjt 2.009*** 0.440*** 0.474 1.148** 0.388*** 0.203(0.677) (0.118) (0.479) (0.479) (0.099) (0.644)
TFPjt−1 0.150*** 0.059*** 0.126*** 0.072 0.061*** 0.107***(0.020) (0.006) (0.029) (0.045) (0.007) (0.034)
Nb observations 493,090 621,988 621,978 184,528 373,602 373,592Fixed effects Firm × destination, year Firm × destination, year
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Results on the effects of euro adoption are provocative:
Weak but negative effect on firm participation in OECDsample only
Effect on number of products by firm and average value ofexports by product is not significant
Is the effect of euro different for different types of firms?
We take firm’s Total Factor Productivity before 1999 anddefine 4 TFP quartiles: Q1, Q2, Q3 and Q4
The euro variable is interacted with the 4 quartiles dummy
We have now 4 coefficients, corresponding to the euro effectsfor the 4 types of firms
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Heterogenous response of French exporters to euro adoption
Table: Euro effects according to initial TFP
Sample OECD EU15Estimator Cond. FE logit Cond. FE poisson Cond. FE logit Cond. FE poisson
Dependent variable Tfjt N
fjpt x
fjt T
fjt N
fjpt x
fjt
EZ1999−2003 × Q1 -0.100 -0.007 -0.034 -0.059 -0.027** -0.056(0.083) (0.015) (0.043) (0.056) (0.011) (0.048)
EZ1999−2003 × Q2 -0.117 0.020 0.013 -0.075 0.000 -0.009(0.080) (0.016) (0.057) (0.049) (0.011) (0.059)
EZ1999−2003 × Q3 -0.122 0.001 0.012 -0.079 -0.019* -0.010(0.086) (0.015) (0.027) (0.058) (0.011) (0.034)
EZ1999−2003 × Q4 -0.097 0.051*** 0.035 -0.055 0.031*** 0.012(0.080) (0.014) (0.045) (0.038) (0.011) (0.053)
RERjt -1.595*** -0.225*** -0.374** -0.765 -0.168* -0.927**(0.489) (0.085) (0.189) (0.720) (0.086) (0.445)
RGDPjt 1.932*** 0.434*** 0.504 1.246*** 0.375*** 0.261(0.676) (0.117) (0.488) (0.465) (0.096) (0.656)
TFPjt−1 0.151*** 0.059*** 0.105*** 0.128*** 0.062*** 0.079***(0.021) (0.006) (0.027) (0.026) (0.007) (0.030)
Nb observations 477,579 580,485 580,474 160,236 342,758 342,747Fixed effects Firm × destination, year Firm × destination, year
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
The effects of euro are very much related to firms’ Total FactorProductivity:
Positive effect of euro introduction on the number of productcategories exported by most productive exporters (Q4)
Negative effect on product selection for least productiveexporters (Q1) in the EU15 sample of destinations
Consistent with an increased competition on eurozone markets
Dynamic adjustment of French exporters channels mainlythrough the number of products exported
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
ConclusionOur objective was to test the various dimensions of multi-productfirms adjustment to trade costs
Cross-section analysis of the effect of distance show that distancehas a negative effect on the number of bilateral export flows inFrench data, with no effect on the average value of export by flow
Firm-level estimates though suggest that distance has a negativeeffect on all components of firm-level exports⇒ Composition effects are important at the country-level, due tofirm selection
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
We then test the euro effects, as a natural experiment for a changein trade costs over time
Firms react to a change in trade costs over time mainly byadding/dropping product categories
Product selection is an important feature of the dynamicadjustment of firm-level exports
Suggests that fixed cost for exporting a new product islower than fixed cost for starting exporting to a newdestination
Secondary results show that past monetary cooperation matters⇒ Larger Euro effect for least integrated destinations within theeurozone
Berthou - Fontagne Multi-product exporters and trade costs
Introduction Data and stylized facts Decomposition of trade flows Distance as a trade cost Euro adoption as a natural experiment Conclusion
Thanks
Berthou - Fontagne Multi-product exporters and trade costs