Disentangling Trade Flows : Firms, Geography and Technology

This thesis consists of three individual studies and a common introduction. Albeit distinct and self-contained, all studies are devoted to how and why trade flows adjust according to characteristics of markets and attributes of links between markets. The studies build on the idea that questions related to how and why different characteristics of markets and links affect trade flows are inseparable from questions pertaining to which components of trade flows they alter. The first study adheres to the export decision of individual firms and focuses on the role of product variety for firms’ exports from a two-pronged perspective: (i) as an attribute of firms that pertains to their potential to recover destination-specific fixed costs of entry and thus the geographical scope of their export activities and (ii) as a component of firms’ export flows that adjusts across destination markets. The second study is devoted to an analysis of how the magnitude of the fixed entry costs firms incur by entering foreign markets is related to characteristics of the link between the origin and the destination market. It proposes a coupling between familiarity and the size of fixed entry costs, such that familiarity should primarily affect trade flows by affecting the number of exporting firms (the extensive margin). The third study analyzes the relationship between technology specialization and export specialization across regions and how the correspondence between the technology specialization in origin and destination alters the quality of the commodities being traded. A gravity model is augmented with technology specialization variables (based on citation-weighed patent data) and their effect on aggregate export values and prices is estimated