Firm-level models of trade

• Applicant: Professor Dr. Harald Fadinger
• Subject Area: Economic Theory ; Economic Policy, Applied Economics
• Term: from 2016 to 2019
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 317300121

Research in international trade increasingly emphasizes firm-level decisions in understanding the causes and consequences of aggregate trade. This theoretical literature highlights heterogeneity in productivity and size within narrowly defined industries. Trade liberalization leads to within-industry reallocations of resources, which raise average industry productivity, as low-productivity firms exit and high-productivity firms expand to enter export markets (Melitz, 2003). The project proposal consists of four sub-projects, which study the impact of international trade on firm-level performance -- in particular productivity and sales -- in a variety of contexts. The first subproject deals with the effect of real exchange rate depreciations on firm-level productivity growth; the second sub-project studies the impact of offshoring on firm-level productivity and changes in the relative demand for skilled labor; the third subproject investigates firms` choice of export destinations when firms try to diversify risk and the consequences for firm-level performance; finally, the last subprojects investigates firms` investment and export decisions when firms face capital adjustment costs and the resulting productivity gains from trade liberalization

• DFG Programme: Research Grants