Dynamics, Economic Growth and International Trade DEGIT XXI Conference

1st – 2nd September 2016 

 

Organized by:

School of Economics, University of Nottingham Nottingham

Centre for Globalization and Economic Policy (GEP)

Organizing Committee:

Holger Breinlich, Paolo Epifani, Giovanni Facchini, Richard Kneller, Giammario Impullitti, Omar Licandro, Chris Milner, Richard Upward (University of Nottingham and GEP); Bjarne S. Jensen (University of Southern Denmark) Economists working in the field of economic growth and international trade are invited to submit a paper or an abstract for presentation at the Nottingham conference. Papers focusing on the global economy, trade dynamics, regional economics, international migration, equilibrium growth, sustainability, national and global political economy of growth, international governance, transition economics, and any other topic directly relevant to economic growth are welcome. Both theoretical and empirical papers will be considered for presentation at the conference.

Keynote speakers at DEGIT XXI will include:

Sascha Becker (University of Warwick)

David de la Croix (Universite’ Catholique de Louvain)

Gene Grossmann (Princeton University)

Ralph Ossa (University of Chicago)

Prospective participants should submit a draft version of the paper or an abstract of at least 200 words by e-mail to degit21@nottingham.ac.uk no later than April 29, 2016. Please address any inquires about the event to the above email address. Please include with your submission a cover page with your name, title, affiliation, address, phone number and e-mail address.

Time Schedule:

April 29, 2016 Deadline for submissions

May 16, 2016 Notification of acceptance to the author

CONFERENCE FEE: GBP 200

For further information, see the DEGIT homepage: http://degit.sam.sdu.dk

Non-homothetic Preferences in Models of International Trade

In international trade models, the assumption of homothetic preferences ensures that income elasticities of demand are equal to one, allowing the analysis to focus on the supply side.  Over the years, many important insights have been facilitated by this assumption.  These include the idea that differing factor proportions can motivate trade, as well as more recent discoveries about firm behavior in an international trade setting.  However the assumption of homothetic preferences has been questioned from an empirical standpoint.  In particular, we do not observe an income elasticity of demand equal to one in the data.  When preferences are assumed to be non-homothetic instead, so that aggregate demand varies with aggregate income as well as the income distribution, the focus of the analysis shifts to the demand side.

The Linder hypothesis is perhaps the best known argument featuring a central role for the demand side in the determination of trade patterns.  Consumers earning similar incomes consume similar baskets of goods, which in turn drives specialization in production and hence exporting to countries where incomes are similar.  Underpinning this specialization, the higher the average national income level, the higher the average quality of goods produced and consumed.  This leads countries at a given income level to specialize and trade amongst themselves at a corresponding level of product quality.

Linder proposed this as a competing hypothesis to the idea that trade is driven by relative factor proportions as in the Heckscher-Ohlin (H-O) model, which was the dominant hypothesis explaining international trade at the time.  His motivation was that the majority of world trade occurred between similar rich countries, which the H-O model had difficulty explaining.  This was also the motivation behind the development of the increasing-returns-based trade literature.  In certain respects, it was also the motivation behind the more recent ‘Ricardian revival’, which shows that variations in technology play a significant role in explaining world trade patterns.  A new empirical literature is emerging to assess the role of non-homothetic preferences.  The findings so far suggest that demand-side factors may be at least as important as those on the supply side in explaining world trade patterns.

 

Caron, Justin, Thibault Fally, and James R. Markusen (2014) “International trade puzzles: a solution linking production and preferences.” The Quarterly Journal of Economics, 129(3): 1501-52. [Working paper version]

Choi, Yo Chul, David Hummels, and Chong Xiang. “Explaining Import Quality: the Role of the Income Distribution.” Journal of International Economics 77 (2009): 265-76. [Working paper version]

Deaton, Angus and John Muellbauer (1980) Economics and Consumer Behavior.  Cambridge University Press.

Dingel, Jonathan (2015) “The Determinants of Quality Specialization.” Working Paper.

Fajgelbaum, Pablo, Gene M. Grossman, and Elhanan Helpman (2011) “Income Distribution, Product Quality, and International Trade.” Journal of Political Economy, 119(4): 721-65.

Fajgelbaum, Pablo D, and Amit K Khandelwal (2016) “Measuring the unequal gains from trade.” Quarterly Journal of Economics, advance online publication, doi: 10.1093/qje/qjw013. [Working paper version]

Fieler, Ana Cecilia (2011) “Nonhomotheticity and Bilateral Trade: Evidence and a Quantitative ExplanationEconometrica, 79(4): 1069-1101.

Hallak, Juan Carlos (2010) “A Product-Quality View of the Linder Hypothesis.” The Review of Economics and Statistics 92(3): 453–66.

Linder, S. B. (1961) An Essay on Trade and Transformation. John Wiley & Sons, Ltd.

Markusen, James R (2013) “Putting per-capita income back into trade theory.” Journal of International Economics 90(2): 255–65.

McCalman, Phillip (2016) “International Trade, Income Distribution and Welfare.Working Paper.

Mitra, Devashish and Vitor Trindade (2005) “Inequality and Trade.” Canandian Journal of Economics, 38(4): 1253-71. [Working paper version]

 

 

Financial Development & Economic Stability (FDES-2016)

in partnership with the Journal of Economic Behavior & Organization

29-30 September 2016, Durham University
http://fdes.sciencesconf.org

 

Dear Colleague,

You are cordially invited to submit research papers (in PDF files) for presentation consideration at the FDES-2016 conference that will take place on 29-30 September 2016 at Durham University. The submission deadline is May 31, 2016.

 

A selection of high-quality papers will be published in a Special Issue of Journal of Economic Behavior & Organization under the guest-editorship of Muhammed-Shahid Ebrahim, Duc Khuong Nguyen, and Yildiray Yildirim.

 

Conference Overview

The International Conference on Financial Development and Economic Stability (FDES-2016), jointly organized by Durham University Business School and IPAG Business School in partnership with the Journal of Economic Behavior & Organization, aims to assess the opportunities and challenges of financial development as well as the conditions to ensure economic stability, with an emphasis on:

  • Robustifying the role of financial development in economic growth by steering funds towards productive activities;
  • Discussing policy options available to promote growth-enhancing forms of capital flows and an efficient intermediation by the financial sector;
  • Improving access to financial services to reduce poverty and social tensions; and
  • Studying the impact of culture in enhancing or impeding financial development.

 

Keynote Speaker

Professor Franklin Allen, Imperial College London, United Kingdom

Professor Thorsten Beck, Cass Business School, United Kingdom

 

Paper Submission
Please submit your paper (in PDF file only) with cover page containing the paper title, abstract and authors’ contact information via the conference’s site, no later than 31 May 2016:
http://fdes.sciencesconf.org/submission/submit

 

Important Dates

May 31, 2016: Paper submission deadline

June 30, 2016: Notification of acceptance/reject

August 15, 2016: Registration deadline

September 29-30, 2016: Conference event

November 15, 2016: Submission to JEBO special issue

 

For more information, please visit the link: http://fdes.sciencesconf.org.

Quality FDI, Growth and Development – Discussing the impact and policy options

The United Nations Industrial Development Organization (UNIDO) – in partnership with the Kiel Institute for the World Economy and in cooperation with the Landegger Program in International Business Diplomacy at the Georgetown University – is organizing a 2-day conference on “Quality FDI, Growth and Development: Discussing the Impact and Policy Options” in Vienna from 14 to 15 September 2016.

Foreign direct investment (FDI), driven by activities of multinational enterprises, have been increasingly regarded as one of the defining characteristics of the world economy and an engine of economic growth. FDI related externalities have been attracting increased interest from emerging and developing countries because of perceived benefits in terms of the injection of capital, technology and knowledge as well as the potential generation of economic growth. Most recently, the United Nations’ Sustainable Development Goals (SDGs) have further highlighted the importance of such investments as crucial welfare improving mechanisms, for instance in infrastructure development, industrialization and innovation. The aim of the Conference is to contribute to a better understanding of these topics by reviewing and shedding new light on the contribution of FDI to economic growth and development in emerging and developing countries. With that objective, the conference will bring together academics, researchers and policy experts and provide a forum to discuss innovative research and policy tools.

We welcome submissions of full-length papers using micro and macro analyses, with strong preference given to applied empirical research. Conference proceedings may be published in form of an edited volume or special issue of a journal.

Submission procedure
Interested applicants wishing to present original research should send their application to: . Any queries on the call for papers should be sent to Adnan Seric at: 

The application will require an up-to-date CV; an abstract not exceeding 300 words, which should summarize the research question, the main methods and data, and key findings of the paper; a full-length paper (6,000-10,000 words long), including all author names, affiliations and contact details, in PDF format written in English.

Submissions from mid-career, female and developing country researchers are particularly encouraged.

Confirmed speakers

Laura Alfaro (Harvard Business School)

Beata Javorcik (University of Oxford)

Theodore Moran (Georgetown University)

Anthony Black (University of Cape Town)

Holger Görg (IFW Kiel)

Hillel Rapoport (Paris School of Economics, CEPII)

Frederik Sjöholm (Lund University)

Important dates

30 June 2016: paper submission deadline

15 July 2016: acceptance/rejection notification

15 August 2016: final papers due to be submitted to UNIDO

14-15 September 2016: conference

Participation in the event is free of charge

Further information

International Conference on The Political Economy of Democracy and Dictatorship

Date: 22 – 24 February 2017

Location: University of Münster, Germany

The conference addresses the origin and prospects of democracy and dictatorship, policy control and governance structures in comparative political systems and transition processes from dictatorship to democracy and vice versa. We will have up to 36 papers presented in three parallel sessions, in addition to four keynote lectures. Bringing together scholars that are interested in interdisciplinary work comparing political systems is our focus.

We welcome theoretical as well as empirical papers by both economists and other social scientists with an interdisciplinary background. In particular, papers may cover topics such as:

  • Institutional change and prosperity
  • Constitutional history of democracy
  • Political accountability in autocracies
  • Violence and political stability
  • Political economy of revolutions
  • Culture, religion, and political Institutions

Keynote Speakers:

  • Toke Aidt, Cambridge University, UK
  • Sabine Carey, University of Mannheim, Germany
  • Barry Weingast, Stanford University, USA
  • Ronald Wintrobe, Western University, CA

Hosts:

  • Thomas Apolte, University of Münster, Germany
  • Mario Gilli, Bicocca University Milan, Italy
  • Yuan Li, University of Duisburg-Essen, Germany

Deadlines and Submission:

  • Abstract submission deadline August 1, 2016 (see conference webpage)
  • Notification of acceptance August 31, 2016
  • Full paper submission deadline December 31, 2016
  • Registration open until January 15, 2017

The Rimini Conference in Economics and Finance (RCEF2016), “INNOVATION, GROWTH, GOVERNANCE AND DEVELOPMENT”, will be held September 16‐18, 2016 in Waterloo, Ontario, Canada

Plenary speakers:

  • Elhanan Helpman (Harvard University)
  • Charles Jones (Stanford University)
  • Malcolm Knight (LSE and CIGI)
  • James A. Robinson (University of Chicago)

The Rimini Conference in Economics and Finance (RCEF) is a biennial conference series assembling a group of leading economists to present and discuss their work at the cutting edge of economic research.  The conference alternates between Italy and Canada, but with a different focus each time. While papers related to the four topics of  innovation, growth, governance and development and their interrelationships are of particular interest to the organizers, we invite papers in other areas of economics, including monetary and fiscal policies, business cycles analysis, international trade and finance, public economics, public finance, general equilibrium, game theory, environmental economics, industrial organization, labour economics, health economics, economic geography, regional development, economics of tourism, econometrics and quantitative methods.

For further details, information on past conferences and to submit a paper, please go to http://www.rcfea.org/

Submission deadline: May 20, 2016.

Notification of acceptance: Authors will be notified of the scientific committee’s decision by June 1, 2016

Conference: Quality FDI, Growth and Development: Discussing the Impact and Policy Options

The United Nations Industrial Development Organization (UNIDO) – in partnership with the Kiel Institute for the World Economy and in cooperation with the Landegger Program in International Business Diplomacy at the Georgetown University – is organizing a 2-day conference on “Quality FDI, Growth and Development: Discussing the Impact and Policy Options” in Vienna from 14 to 15 September 2016
 
Foreign direct investment (FDI), driven by activities of multinational enterprises, have been increasingly regarded as one of the defining characteristics of the world economy and an engine of economic growth. FDI related externalities have been attracting increased interest from emerging and developing countries because of perceived benefits in terms of the injection of capital, technology and knowledge as well as the potential generation of economic growth. Most recently, the United Nations’ Sustainable Development Goals (SDGs) have further highlighted the importance of such investments as crucial welfare improving mechanisms, for instance in infrastructure development, industrialization and innovation. The aim of the Conference is to contribute to a better understanding of these topics by reviewing and shedding new light on the contribution of FDI to economic growth and development in emerging and developing countries. With that objective, the conference will bring together academics, researchers and policy experts and provide a forum to discuss innovative research and policy tools.
 
We welcome submissions of full-length papers using micro and macro analyses, with strong preference given to applied empirical research. Conference proceedings may be published in form of an edited volume or special issue of a journal.
 
Confirmed speakers 
 
Laura Alfaro (Harvard Business School)
Beata Javorcik (University of Oxford)
Theodore Moran (Georgetown University)
Anthony Black (University of Cape Town)
Holger Görg (IFW Kiel)
Hillel Rapoport (Paris School of Economics, CEPII)
Frederik Sjöholm (Lund University)
 
Important dates
 
30 June 2016: paper submission deadline
15 July 2016: acceptance/rejection notification
15 August 2016: final papers due to be submitted to UNIDO
14-15 September 2016: conference
 
More information about the Conference, including the conference content and paper submission guidelines, is available at
 
https://www.ifw-kiel.de/academy/the-global-division-of-labour/p1_data/quality-fdi-growth-and-development-discussing-the-impact-and-policy-options/call-for-paper_fdi-conference.pdf
 
Participation in the event is free of charge.  
 
Best regards,
 
Adnan Seric (Conference Coordinator)
Department of Trade, Investment and Innovation
www.unido.org
 
Holger Görg
Kiel Institute for the World Economy

Call for Papers: Workshop on Trade and Labor Markets in Developing Countries

July 6th – 8th 2016, São Paulo, Brazil.

São Paulo School of Economics (EESP-FGV) and the Swiss Program for Research on Global Issues for Development (r4d) are pleased to invite submissions for the Workshop on Trade and Labor Market in Developing Countries. The objective is to discuss recent theoretical developments and empirical applications on the intersection between trade and labor issues: impacts of effective labor market reform on trade, effects of trade reforms on labor market outcomes, causes and consequences of trade on skill development, export promotion and labor outcomes, and linking trade and labor issues in regional and multilateral trade agreements. Academic researchers working in labor economics, international trade, and development economics are very welcome to submit their work.

The workshop is part of the project Trade and Labor Market in Developing Countries funded by the Swiss Program for Research on Global Issues for Development (r4d)

The workshop committee may provide air transportation, as well as lodging for the selected papers.

Papers should be submitted in English and PDF format, to tradelaborworkshop16@fgv.br no later than April 30th 2016. Please submit with subject line: Workshop on Trade and Labor Market in Developing Countries. We expect notification to be by May 15th , 2016. If authors require financial support, they should indicate it at the time of submission of the paper.

Evaluation Committee:

Vladimir Ponczek Sao Paulo School of Economics (FGV-EESP)

Cristine Campos de Xavier Pinto Sao Paulo School of Economics (FGV-EESP)

Joao Paulo Pessoa Sao Paulo School of Economics (FGTV-EES)

 

CALL FOR PAPERS – COLLOQUIUM: Canada, the United States, and the Trans-Pacific Partnership

Proposals are due no later than May 15, 2016

Colloquium Dates: February 22-24, 2017

Venue: University of Hawai`i at Mānoa

Fulbright Canada, and the Center for the Study of Canada at the State University of New York College at Plattsburgh, in partnership with the University of Hawai`i at Mānoa, are pleased to announce an international scholarly colloquium aimed at addressing critical contemporary social, political and economic issues. Our 2017 colloquium sets out to comprehensively examine and evaluate the impact of the proposed Trans-Pacific Partnership (TPP) on Canada, the U.S., and its foreign economic policies and priorities. The colloquium, entitled Canada, the United States, and the Trans-Pacific Partnership: Change and Challenge in the Brave New World of International Economic Cooperation,” will be convened at the University of Hawai`i at Mānoa, from February 22-24, 2017.

Dr. Michael Hawes, CEO of the Foundation for Educational Exchange between Canada and the United States of America and Executive Director of Fulbright Canada, Dr. Christopher Kirkey, Director of the Center for the Study of Canada, and Dr. Denise Eby Konan, Dean of the College of Social Sciences, University of Hawai`i at Mānoa, will coordinate the colloquium. We enthusiastically invite submissions for scholarly papers, within a range of perspectives, from doctoral candidates, junior academics, established scholars, and working professionals from across the international community. The deadline for proposals is May 15, 2016.

The University of Hawai`i at Mānoa, founded in 1907, and located in beautiful Mānoa Valley just outside of downtown Honolulu on the island of Oʻahu, is the site of the Daniel K. Inouye Center for Democratic Leadership (DKI Center), currently under development. The Center will advance public service leadership, democratic ideals, and global awareness through visiting and resident experts, communications programs, seminars, public engagement programs, Congressional Archives, K-12 educational programs, exhibitions, fellowship programs and civic engagement initiatives. The colloquium is being organized within the spirit of the DKI Center initiative.

Background

The Trans-Pacific Partnership (TPP), a large-scale trade agreement that was negotiated between twelve Pacific Rim countries, including Canada, the United States and Mexico, was concluded on October 5, 2015, after seven years of fairly intense negotiations. The ratification process is currently under way. It has been characterized by governments in North America as the natural next step in regional economic integration and the path to greater innovation and prosperity. The agreement’s stated goal is to “promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty; and promote transparency, good governance, and enhanced labor and environmental protections.”

The strong push for the TPP stems out of several factors. First, multilateral negotiations within the context of the World Trade Organization’s (WTO’s) Doha Round of 2001 have largely stalled with no conclusion. In the past decade, there has been an acceleration of regional trade agreements as a result. Second, the TPP advances a ‘rules-oriented’ approach that includes many of the measures that the U.S. and Canada have sought in trade negotiations, including high standards for intellectual property rights, foreign direct investment, services liberalization, and internet access to name a few. Third, the TPP also plays a role in a ‘rebalancing’ strategy that on the one hand strengthens North American economic ties within the Asia Pacific and on the other hand provides a counterbalance to the influences of the missing partner, China.

The TPP would expand Canada’s preferential access to the U.S. market enjoyed under the North America Free Trade Agreement (NAFTA) and it could well provide new export opportunities with other signatories, such as Vietnam and Japan. The TPP, like the FTA and NAFTA before it, has raised some concerns among environmentalists, trade unionists, public health professionals, and other activists, based on the expansiveness of the agreement, the perceived secrecy of the negotiations and the potential for significant change.

Based on the fact that it is a trading nation, whose prosperity is linked to enhanced access to foreign markets, Canada is expected to ratify the TPP. Prior to the most recent election, then Canadian Prime Minister Stephen Harper stated that he expected “signatures on the finalized text and deal early in the new year, and ratification over the next two years.” The newly elected Prime Minister, Justin Trudeau, has promised to hold parliamentary hearings on the sweeping deal and consult with a large number of stakeholders before supporting ratification. Having said that, Mr. Trudeau campaigned on a platform that included a more expansive foreign policy and a more open trade policy.

In June 2015, the U.S. Congress passed ‘fast track’ or trade promotion authority (TPA) that was signed into law by President Obama, thus providing him impermanent power to negotiate trade deals to be ratified by Congress (or not) without amendment. 3 Positioned as part of his ‘pivot to Asia,’ President Obama touts the strong labor and environmental standards and progressive nature of this agreement as being a model for the rules that the U.S. seeks in future agreements.

The TPP has generated considerable debate among and between those who see the agreement as a very positive approach to economic growth and a necessary next step in the integration of global trade and capital markets and those who see the many challenges that could arise from an agreement that provides for the freer movement of goods, services, and jobs and promises to reduce regulatory restrictions.

Interdisciplinary Scope

The colloquium is broadly interested in submissions that directly explore the intersection between Canadian foreign policy priorities and domestic policy interests as they relate to the TPP. Submissions from political scientists, international relations specialists, historians, economists, trade policy experts, sociologists, scholars interested in technology, and culture, as well as those that purposely incorporate a distinctly inter/intra/multidisciplinary perspective are strongly encouraged.

Colloquium Participation, Timing and Results

We invite papers that examine both the domestic and international dimensions of the TPP for Canada and the United States and the Canada-U.S. relationship. It is most appropriate that the colloquium take place in Hawaii, which is located in the geographic center of the proposed 12-member trade pact.

If you are interested in submitting a proposal for the colloquium, please forward an abstract, not to exceed 300 words, to the colloquium conveners. Your submission should clearly state the central argument of the proposed paper, set out the theoretical approach, identify the empirical evidence to be examined, and provide a working title for the paper. In addition, we would ask that all submissions include a current curriculum vitae for the author(s). Submissions should be sent electronically to the conference coordinators (mhawes@fulbright.ca, kirkeycj@plattsburgh.edu), not later than May 15, 2016. An academic panel will review all submissions, with decisions being made and individuals contacted not later than May 31, 2016. A maximum of 20 proposals will be accepted for the colloquium. At least two panels will be dedicated to scholarly presentations from University of Hawai`i at Mānoa faculty. Invited participants will be provided with detailed guidelines for their papers (length, format, footnote/reference style requirements, etc.).

Confirmed participants will be required to submit their draft contributions by November 30, 2016. We intend to circulate all of the papers to all of the contributors in advance – in early February 2017, thereby allowing each of the authors the opportunity to read the work of their colleagues. This colloquium is designed in such a way that we do not 4 expect authors to ‘present’ their work in a traditional fashion. Rather, we are proposing that each author(s) prepare and deliver a formal evaluative commentary on another paper. This paper will be identified by the colloquium conveners, and worked out in consultation with the authors.

As a practical matter, each of the panel sessions will include a formal commentary followed by a brief response by the author for each of the papers, followed by a general discussion involving all of the participants. This model will allow us to keep the group small and focused and allow for maximum individual participation.

By the close of March 2017, contributors will be provided with a formal written evaluation/analysis of their contribution, reflecting the comments and suggestions of your assigned commentator as well as those of the colloquium coordinators, Drs. Hawes and Kirkey. Contributors will have until May 31, 2017, to undertake any revisions and to electronically re-submit their papers. Selected proceedings from the colloquium will be edited (by Hawes and Kirkey) and published as a special thematic issue of Canadian Foreign Policy Journal (CFPJ). CFPJ, Canada’s leading journal on international affairs, is a fully peer-reviewed interdisciplinary journal published three times a year by the Norman Paterson School of International Affairs (NPSIA) at Carleton University. Canadian Foreign Policy Journal (CFPJ), Established in 1992, the journal’s international advisory and editorial boards reflect diverse political, disciplinary and professional perspectives. Contributors are drawn from Canada and around the world. Essays are fully referenced, peer-reviewed, authoritative yet written for the specialist and non-specialist alike. Readers of the journal include government officials, academics, students of international affairs, journalists, NGOs, and the private sector. http://www.tandfonline.com/toc/rcfp20/current.

The editors further anticipate publishing a larger number of essays from the colloquium as an edited scholarly book.

Colloquium Support for Participants

To facilitate involvement in this project, Fulbright Canada, the Center for the Study of Canada, and the University of Hawai`i at Mānoa, are pleased to be able to provide colloquium participants the following support:

  • an opening evening reception on Wednesday, February 22, 2017;
  • breaks and lunch, Thursday and Friday, February 23 and 24, 2017;
  • hotel lodging in Waikiki for four nights (arrival February 21st and departure on February 25th) – a complimentary breakfast will be provided; and,
  • an honorarium of $325 to help offset travel expenses.

Please note that the conference organizers are also currently exploring the possibility of a dedicated cultural excursion on Oʻahu.

We trust that you will agree that this is an exciting initiative. We encourage you to contact us with any inquiries you may have. We look forward to receiving your proposal!

Granularity and International Trade

A large literature has developed over the last twenty years or so to understand the role of firm heterogeneity in a country’s exporting behavior.  A key feature of the models in this literature is that they typically assume each firm has measure zero in its industry.  This assumption is useful because it removes strategic interaction between firms and so helps makes tractable the complexities of firm heterogeneity.  An implication of this assumption is that no single firm can affect industry aggregates.  And so the productivity realizations of a single firm or small group of firms cannot affect a country’s aggregate exports.

New research argues that useful insights are gained by relaxing the measure zero assumption, allowing individual firms to be at the center of the analysis.  The reason is that in reality firms, especially the largest ones, can play a pivotal role in business cycle and aggregate trade fluctuations; aggregate welfare; or even on a country’s comparative advantage.  When firms are allowed to be “granular” or large relative to the markets in which they operate, idiosyncratic shocks to individual (large) firms, such as reductions in trade costs and productivity changes across countries, will not average out, and instead lead to movements in the aggregates.  This has already been shown empirically for French and American data.

This new line of research may be particularly useful in studying international trade and economic development.  In developing countries, there is a greater prevalence of industrial policy that promotes exporting by particular firms within sectors.  At the same time, regulatory regimes are often opaque and unpredictable, and credit markets or commercial policies favor large firms.  In this setting, granularity in firms may help to explain why developing economies tend to be fundamentally more volatile than developed economies.   However, there is currently little empirical evidence on the role of individual firms and firm-to-firm linkages in aggregate fluctuations in developing countries.

 

Atkeson, A. and A. Burstein (2008): “Pricing to Market, Trade Costs and International Relative Prices,” American Economic Review, 98(5), 1998–2031. [Working Paper Version]

Bernard, A. B., J. B. Jensen, S. J. Redding, and P. K. Schott (2015) “Global Firms,” Working Paper.

di Giovanni, J. and A. Levchenko (2009) “International Trade and Aggregate Fluctuations in Granular Economies,” Working Paper.

Di Giovanni, J., A. Levchenko, and I. Méjean (2014): “Firms, Destinations, and Aggregate Fluctuations,” Econometrica, 82(4): 1303–1340. [Working Paper Version]

Eaton, J., S. Kortum, and S. Sotelo (2012): “International Trade: Linking the Micro and the Macro,” NBER Working Paper, 17864.

Gabaix, X. (2011) “The Granular Origins of Aggregate Fluctuations,” Econometrica, 79: 733-772.

Gaubert, C. and O. Itskhoki (2015) “Granular Comparative Advantage,” Working Paper.

Hottman, C., S. Redding, and D. Weinstein (2015) “Quantifying the Sources of Firm Heterogeneity,” Quarterly Journal of Economics, forthcoming. [Working Paper Version]

Melitz, M. J. (2003) “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity,” Econometrica, 71(6): 1695–1725.