Product and Process Productivity: Implications for quality choice and conditional exporter premia

By J. Hallak, Jagadeesh Sivadasan. 2013

289 citations recorded by the source corpus.

We develop a model of international trade with two dimensions of firm heterogeneity. The first dimension is “process productivity”, which is how we denote the standard concept of productivity as modeled in the literature. The second one is “product productivity”, defined as firms' ability to develop high-quality products spending small fixed outlays. The distinction between these two sources of productivity, together with the assumption that iceberg trade costs decrease with quality, delivers various conditional exporter premia as theoretical predictions. Conditional on size, exporters sell higher quality products, charge higher prices, pay higher input prices and higher wages, and use capital more intensively. Some of these predictions had already been documented in the empirical literature but lacked a theoretical framework for properly interpreting them. We conduct systematic tests of these predictions using manufacturing establishment data for India, the U.S., Chile, and Colombia, and find strong support for the model.

Subfields: Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/454cecb83fcc65cf234bbe51be6915778633451d

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Citations in the corpus

The Product Market Effects of Hedge Fund Activism (2016, unknown): “…(b) relatively large number of ve-digit SIC codes within the industry (#5-digit SIC codes) as a measure of high product di¤erentiation (Hallak and Sivadasan, 2013; Nain and Wang, 2013); (c) high asset speci city, where we employ a measure used by Kim and Kung (2014) and Fresard and…”
Verti-Zontal Differentiation in Export Markets (2013, background): “Single-attribute models, like the ones in Table 2, leave a substantial amount of variability unexplained, as also pointed out by Hallak and Sivadasan (2013). However, unreported F-tests turn out to be”
Export Destinations and Input Prices (2014, background): “In each country, there is a representative consumer with the following utility function over final goods: Uj = [∫ ω∈Ωj (q(ω)µjx(ω)) σ−1 σ dω ] σ σ−1 β Z1−β (A1) Z is the quantity of the homogeneous good consumed; β > 0 will be the budget share spent on differentiated goods; ω indexes varieties in ”