Peter K. Schott

Across-Product Versus Within-Product Specialization in International Trade

This paper exploits product-level U. S. import data to test trade theory. Although the United States increasingly sources the same products from both high- and low-wage countries, unit values within products vary systematically with exporter relative factor endowments and exporter production techniques. These facts reject factor-proportions specialization across products but are consistent with such specialization within products. The data are inconsistent with new trade theory models predicting an inverse relationship between price and producer productivity. The existence of within-product specialization is an important consideration for understanding the impact of globalization on firms and workers, the evolution of total factor productivity, and the likelihood of long-run income convergence.

Survival of the Best Fit: Exposure to Low-Wage Countries and the (Uneven) Growth of U.S. Manufacturing Plants

This paper examines the role of international trade in the reallocation of U.S. manufacturing activity within and across industries from 1977 to 1997. It introduces a new measure of industry exposure to international trade, motivated by the Heckscher-Ohlin model, which focuses on where imports originate rather than their overall level. Results demonstrate that plant survival as well as output and employment growth are negatively associated with the share of industry imports sourced from the world ?s lowest-wage countries. Within industries, activity is reallocated towards capital- intensive plants. Plants are also more likely to alter their product mix (i.e. switch industries) in response to trade with low-wage countries. Plants altering their product mix switch to industries that are more capital and skill- intensive.

Importers, Exporters and Multinationals: A Portrait of Firms in the U.S. that Trade Goods

This paper provides an integrated view of globally engaged U.S. firms by exploring a newly developed dataset that links U.S. international trade transactions to longitudinal data on U.S. enterprises. These data permit examination of a number of new dimensions of firm activity, including how many products firms trade, how many countries firms trade with, the characteristics of those countries, the concentration of trade across firms, whether firms transact at arms length or with related parties, and whether firms import as well as export. Firms that trade goods play an important role in the U.S., employing more than a third of the U.S. workforce. We find that the most globally engaged U.S. firms, i.e. those that both export to and import from related parties, dominate U.S. trade flows and employment at trading firms. We also find that firms that begin trading between 1993 and 2000 experience especially rapid employment growth and are a major force in overall job creation.

Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics

This paper examines the response of industries and firms to changes in trade costs. Several new firm-level models of international trade with heterogeneous firms predict that industry productivity will rise as trade costs fall due to the reallocation of activity across plants within an industry. Using disaggregated U.S. import data, we create a new measure of trade costs over time and industries. As the models predict, productivity growth is faster in industries with falling trade costs. We also find evidence supporting the major hypotheses of the heterogenous-firm models. Plants in industries with falling trade costs are more likely to die or become exporters. Existing exporters increase their shipments abroad. The results do not apply equally across all sectors but are strongest for industries most likely to be producing horizontally-differentiated tradeable goods.

Wholesalers and Retailers in US Trade

International trade models typically assume that producers in one country trade directly with final consumers in another. In reality, of course, trade can involve long chains of potentially independent actors who move goods through wholesale and retail distribution networks. These networks likely affect the magnitude and nature of trade frictions and hence both the pattern of trade and its welfare gains. To promote further understanding of the means by which goods move across borders, this paper examines the extent to which US exports and imports flow through wholesalers and retailers versus producing and consuming firms.(This abstract was borrowed from another version of this item.)

Transfer Pricing by U.S.-Based Multinational Firms

This paper examines how prices set by multinational firms vary across arms-length and related-party customers. Comparing prices within firms, products, destination countries, modes of transport and month, we find that the prices U.S. exporters set for their arms-length customers are substantially larger than the prices recorded for related-parties. This price wedge is smaller for commodities than for differentiated goods, is increasing in firm size and firm export share, and is greater for goods sent to countries with lower corporate tax rates and higher tariffs. We also find that changes in exchange rates have differential effects on arms-length and related-party prices; an appreciation of the dollar reduces the difference between the prices.

Product Choice and Product Switching

This paper develops a model of endogenous product selection by firms. The theory is motivated by new evidence we present on the importance of product switching by U.S. manufacturers. Two-thirds of continuing firms change their product mix every five years, and product switches involve more than 40% of firm output and almost half of existing products. The theoretical model incorporates heterogeneous firms, heterogeneous products, and ongoing entry and exit. In equilibrium, firm productivity is correlated with product fixed costs, with the most productive firms choosing to make the products with the highest fixed costs. Changes in market structure result in systematic patterns of firm entry/exit and product switching.

Wholesalers and retailers in US Trade

International trade models typically assume that producers in one country trade directly with final consumers in another. In reality, of course, trade can involve long chains of potentially independent actors who move goods through wholesale and retail distribution networks. These networks likely affect the magnitude and nature of trade frictions and hence both the pattern of trade and its welfare gains. To promote further understanding of the means by which goods move across borders, this paper examines the extent to which US exports and imports flow through wholesalers and retailers versus producing and consuming firms.

Survival of the Best Fit: Competition from Low Wage Countries and the (Uneven) Growth of Us Manufacturing Plants

We examine the relationship between import competition from low wage countries and the reallocation of US manufacturing from 1977 to 1997. Both employment and output growth are slower for plants that face higher levels of low wage import competition in their industry. As a result, US manufacturing is reallocated over time towards industries that are more capital and skill intensive. Differential growth is driven by a combination of increased plant failure rates and slower growth of surviving plants. Within industries, low wage import competition has the strongest effects on the least capital and skill intensive plants. Surviving plants that switch industries move into more capital and skill intensive sectors when they face low wage competition.

Is Mexico a Lumpy Country

Mexicos experience before and after trade liberalization presents a challenge to neoclassical trade theory. Though labor abundant, it nevertheless exported skill-intensive goods and protected labor-intensive sectors prior to liberalization. Post-liberalization, the relative wage of skilled workers rose. Courant and Deardorff (1992) have shown theoretically that an extremely uneven distribution of factors within a country can induce behavior at odds with overall comparative advantage. We demonstrate the importance of this insight for developing countries. We show that Mexican regions exhibit substantial variation in skill abundance, offer significantly different relative factor rewards, and produce disjoint sets of industries. This heterogeneity helps to both undermine Mexicos aggregate labor abundance and motivate behavior that is more consistent with relative skill abundance.