Luca David Opromolla

The Margins of Multinational Production and the Role of Intrafirm Trade

Multinational production (MP) can lead to large gains through international technology sharing. However, empirical evidence suggests that geography matters for MP: Affiliate sales fall in distance from the headquarters. We introduce intrafirm trade into a standard model of exports and MP and show that the model is consistent with firm-level and aggregate evidence. Using a maximum likelihood estimator, we find that intrafirm trade plays a crucial role in shaping the geography of MP. An implication of our work is that MP and exports are very similar activities. Consequently, shutting down MP leads to relatively small welfare losses.

The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs

Trade costs are often additive. Well-known examples are quotas, per unit tariffs, and, in part, transportation costs. In spite of this, we have no broad and systematic evidence of the magnitude of these costs. In this paper, we develop a new empirical framework for estimating additive trade costs from standard firm-level trade data. Our results suggest that additive barriers are on average 14%, expressed relative to the median price. The point estimates are strongly correlated with common proxies for trade costs. Using our microestimates, we show that an additive import tariff reduces welfare and trade by more than an equal-yield multiplicative tariff.

Hysteresis in Export Markets

This paper develops a dynamic monopolistic competition model with heterogenous firms to analyze the effects of uncertainty on international trade. We characterize a stationary equilibrium, with N symmetric countries, where firms’ productivities evolve stochastically over time. Our model retains the main results of previous recent papers like Melitz (2003) and Bernard, Eaton, Jensen and Kortum (2003) and provides additional new predictions. Reentry export costs generate hysteresis in export participation creating a band of inaction within the stationary distribution of firms’ productivities. The decision to export becomes history-dependent and new entrants and incumbent firms might sustain temporary negative profits before becoming profitable. Most importantly, the model is very amenable to estimation and simulation, therefore representing a useful tool for analyzing the effects of trade policies. Several moments, like average age, size and productivity of different categories of firms (exporters, entrants, exiters,incumbents), the hazard rate of exiting or of becoming an exporter as a function of age and others have closed-form solutions that are crucial for matching static and dynamic features of the data.

Trade Reforms in a Global Competition Model: The Case of Chile

We use a global competition model of international trade with heterogeneous firms to evaluate the impact of trade reforms that occurred in Chile at the end of the 70s. We compare the predictions of the calibrated model in terms of productivity, plant turnover, job and trade flows with what occurred in reality using a comprehensive plant-level panel dataset for the manufacturing sector. The model explains several effects of liberalization reforms on industry performance. In contrast to the previous studies we use a general equilibrium approach that allows fully quantifying and identifying the trade liberalization effects on the tradeable and nontradeable sectors. We proceed by performing a counterfactual experiment aimed at exploring the impact of preferential trade agreements negotiated by Chile in recent years with the EU and NAFTA.

Productivity and Organization in Portuguese Firms

The productivity of firms is, at least partly, determined by a firms actions and decisions. One of these decisions involves the organization of production in terms of the number of layers of management the firm decides to employ. Using detailed employer-employee matched data and firm production quantity and input data for Portuguese firms, we study the endogenous response of revenue-based and quantity based productivity to a change in layers: a firm reorganization. We show that as a result of an exogenous demand or productivity shock that makes the firm reorganize and add a management layer, quantity based productivity increases by about 4%, while revenue-based productivity drops by more than 4%. Such a reorganization makes the firm more productive, but also increases the quantity produced to an extent that lowers the price charged by the firm and, as a result, its revenue-based productivity.