Trade and the International Organization of Production

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Trade and the International Organization of
Production

• Elhanan Helpman

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International Trade Background

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Trade of Old with New Members
180
160
140
120
100
USD Billions
80
60
40
20
0
1992
1994
1996
1998
2000
2002
2004
2006
TOTAL EXPORT
TOTAL IMPORT
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Traditional Explanations of Trade

• Differences in technology.
• Differences in factor endowments.
• Added in the 1980s economies of scale and
  monopolistic competition.
• New features within industry heterogeneity,
  organizational features, and contracting
  institutions.

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Source Bartel, Lach and Sicherman 2005
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Producer Export Participation 1986, 1987
Source Eaton, Kortum and Kramarz, 2004
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Fractions of Country Pairs by Trading Status 1986
Source Helpman, Melitz and Rubinstein, 2004
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FDI Background

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FDI in Old and New Members
700
600
500
400
USD Billions
300
200
100
0
1992
1994
1996
1998
2000
2002
2004
2006
Old (Excluding BEL. LUX)
New
Old (Including BEL, LUX)
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FDI of Old in New Members
20
15
USD Billions
10
5
0
1992
1994
1996
1998
2000
2002
2004
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Traditional Explanations of FDI

• Horizontal FDI Proximity-concentration tradeoff.
• Vertical FDI endowment (cost) differences.
• New features within industry heterogeneity and
  organizational structures.
• Horizontal vs Vertical FDI is not a valid
  distinction.

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Source Helpman, Melitz and Yeaple, 2004
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Impact of Heterogeneity

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Export Decision
Source Melitz, 2003
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Implications

• Impact of protection on productivity entry and
  exit, allocation of output across firms, more
  export markets.
• Free trade agreements have major effects on
  sectoral reallocations for productivity and
  employment (see Trefler 2004).
• Trade liberalization has major effects on
  technology adoption (see Bustos 2005).

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Export Vs FDI
Productivity
Source Helpman, Melitz and Yeaple, 2004
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Implications

• Explains productivity differences across
  exporters and MNCs.
• Export/Subsidiary Sales varies across sectors,
  depending on productivity dispersion.
• Richer trade and FDI patterns.

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Contractual Frictions

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Source Antras, 2003
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Source Antras, 2003
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Organizational Forms with Contracting Frictions
Productivity
Source Antras and Helpman, 2004
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Complex Integration Strategies

• FDI in components and assembly are complementary.
• Export-platform FDI gains importance, especially
  in the presence of free trade agreements.
• Richer trade and FDI predictions.

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Countries Ordered by a Rule of Law Index High End
Weighted average of a number of variables that
measure individuals perceptions of the
effectiveness and predictability of the judiciary
and the enforcement of contracts. Source Nun,
2005.
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Rule of Law Encourages Export of Goods Intensive
in Relationship-Specific Investment
Source Nun, 2005 Trefler, 2005
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Institutions and GDP Per Capita 1997
Source Trefler, 2005