An Anatomy of International Trade: Evidence from French Firms
We examine the sales of French manufacturing firms in 113 destinations, including France itself. Several regularities stand out: (1) the number of French firms selling to a market, relative to French market share, increases systematically with market size; (2) sales distributions are very similar across markets of very different size and extent of French participation; (3) average sales in France rise very systematically with selling to less popular markets and to more markets. We adopt a model of firm heterogeneity and export participation which we estimate to match moments of the French data using the method of simulated moments. The results imply that nearly half the variation across firms that we see in market entry can be attributed to a single dimension of underlying firm heterogeneity, efficiency. Conditional on entry, underlying efficiency accounts for a much smaller variation in sales in any given market. Parameter estimates imply that fixed costs eat up a little more than half of gross profits. We use our results to simulate the effects of a counterfactual decline in bilateral trade barriers on French firms. While total French sales rise by around US$16 billion, sales by the top decile of firms rise by nearly US$23 billion. Every lower decile experiences a drop in sales, due to selling less at home or exiting altogether.
Data on the individual export destinations of French firms shed light on the nature of entry barriers to national markets. The data reveal some striking regularities: (1) Looking across des tinations, the relationship between market size, French market share, and the number of French firms selling there is very tight, with the number of participants rising almost in proportion with respect to market share and with an elasticity of about two-thirds with respect to market size. (2) Looking across firms, most exporters sell to very few markets while a small number sell almost everywhere. Firms that export more widely sell much more within France and have higher value-added per worker. We show that a simple Ricardian model of export behavior with Cournot competition and a fixed cost of entry, calibrated to data on trade shares around the world, can explain these features. A relatively low fixed cost implies a diÂ¤erence in the number of goods supplied to the largest and smallest markets of a factor of nearly 500. But with our assumption about the elasticity of substitution across commodities and our model's implication that lowest cost suppliers are verrepresented in the smallest markets, the implied welfare advantage is only 1.5
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