International trade and industry productivity dynamics with heterogeneous producers.

This dissertation develops models and estimation methods to analyze industry productivity dynamics in international settings. Chapters I and III examine the role of resource reallocations between firms with different productivity levels as a transmission channel for the effects of trade. In particular, these chapters analyze how the reallocations affect industry performance and welfare. The second chapter develops estimation methods that are particularly well suited to empirically test the implications of the theoretical model described in the first chapter. The first chapter explains how trade can instigate some major changes within industries by affecting the composition and relative performance of firms in the industry. The paper shows how exposure to trade will induce reallocations within an industry that benefit the more productive firms. These reallocations are known to be empirically significant, but they cannot be explained by the current generation of trade models as a result of a reliance on a representative firm framework. The paper explains why only the more productive firms choose to export (while some less productive firms only produce for their domestic market), and will simultaneously force the least productive firms to exit the industry. These composition changes generate aggregate productivity increases and welfare gains. The second chapter develops methods that more accurately measure and interpret productivity differences between firms and productivity changes over time. Most data sources of firm level production do not record the quantities and qualities of the goods produced by individual firms and only record the firms' total revenue sales. Most empirical productivity studies using these data sources directly use the firm revenue data as a substitute for the unobserved firm output information. This paper shows how this practice may lead researchers to mis-interpret the obtained productivity estimates. It then shows how to obtain meaningful productivity estimates from these same data sources. The third chapter considers a special kind of productivity difference between domestic and foreign firms that is associated with infant industries. The paper analyzes when and how these infant industries should be protected by either trade or industrial policies. The paper develops some criteria to asses when protection is welfare enhancing. In these cases, the paper explains why the protection of the infant industry with quantity restrictions may create less distortions than protection with tariffs or production subsidies. The paper thus introduces a new argument to the trade policy literature that supports a different interpretation of some of the past and current use of quantity restrictions for infant industry protection.Ph.D.Commerce-BusinessEconomicsSocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/132841/2/9990943.pd