Open AccessBetting on Exports: Trade and Endogenous Heterogeneity
Author(s) -
Bonfiglioli Alessandra,
Crinò Rosario,
Gancia Gino
Publication year - 2018
Publication title -
the economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.683
H-Index - 160
eISSN - 1468-0297
pISSN - 0013-0133
DOI - 10.1111/ecoj.12408
Subject(s) - productivity , economics , wage , variance (accounting) , pareto principle , panel data , dispersion (optics) , labour economics , econometrics , macroeconomics , operations management , physics , accounting , optics
We study the determinants of firm‐level heterogeneity in a model where innovation choices upon entry affect the variance of productivity draws. In equilibrium, productivity is Pareto distributed with a shape parameter that depends on industry‐level characteristics. We show that export opportunities, by increasing the pay‐offs in the tail, induce firms to invest in bigger projects with more dispersed outcomes. When more productive firms pay higher wages, trade amplifies wage dispersion by making firms more unequal. These results are consistent with how firm size, innovation and wage heterogeneity vary in a panel of US industries and states.