Davide Sala

Export Experience of Managers and the Internationalisation of Firms

As the firm gravitates to the core analysis of international trade models, the possibilities to learn from the theory of the multinational enterprise developed in international business studies increase. The managerial resources and capabilities that are so emphasized in this theory for export initiation have largely been neglected in the empirical studies of international trade. Probably not because they are unimportant, but rather because of the challenge to identify and measure them. We exploit Danish employer-employee matched data to overcome this barrier and analyze the impact of managers’ international experience together with other managerial characteristics on the likelihood that the firm starts exporting. We find that productivity and fixed costs associated to exporting are not the sole determinants of the selection of firms into international markets, but “managerial inputs” are as important. Our data allows us to identify managers’ export experience based on the CEOs’ historical career as documented in official registry statistics. This puts our study apart from earlier survey based studies which rely on self-assessments.

Market Access through Bound Tariffs

WTO negotiations deal predominantly with bound - besides applied - tariff rates. But, how can reductions in tariffs ceilings, i.e. tariff rates that no exporter may ever actually be confronted with, generate market access? The answer to this question relates to the effects of tariff bindings on the risk that exporters face in destination markets. The present paper formalizes the underlying interaction of risk, fixed export costs and firms’ market entry decisions based on techniques known from the real options literature; doing so we highlight the important role of bound tariffs at the extensive margin of trade. We find that bound tariffs are more effective with higher risk destination markets, that a large binding overhang may still command substantial market access, and that reductions in bound tariffs generate effective market access even when bound rates are above current and long-term applied rates.

Innovation and Trade Policy Coordination: The Role of Firm Heterogeneity

Recent studies have concluded that R&D grants can induce firms to export and that exporting and innovating can be complementary activities at the firm level. Yet the trade literature has paid little attention to the scope of innovation policy as a stimulus to both trade and innovation. To investigate this question we rely on a general work-horse model of trade and firm heterogeneity with firm investments in R&D activities. The multiplicity of equilibria together with the interplay of innovation and trade policies uncover novel results. In particular, we show that the effects of either policy depend on the degree of protectionism in a country. Therefore, countries can respond differently to the same policy, and similarly to different policies. In such a context, different governments may face different degrees of freedom regarding how to achieve a given target. This finding leads us to discuss the issue of policy coordination.

On the Equivalence of Tariffs and Quotas for Customs Unions

While quotas can be expressed in tariff-equivalent terms and have identical economic effects under some conditions, they do not share the same welfare implications with tariffs in the presence of a piecemeal reform (second-best). In this paper we show that this non-welfare equivalence persists in perfect competition when countries undergo regional integration. A Pareto improving customs union is nevertheless viable in both protection regimes, but it requires different trade policy adjustments. When we extend the analysis beyond the competitive framework and consider shocks to the economy or imperfect markets, this general desirability of unions is unfortunately lost. But we show that, interestingly, the equivalence between tariff and quota regimes can still arise under particular circumstances, and only quotas provide countries with full insurance from price fluctuations.