CEP LSE RSS Contact Us YouTube Facebook Twitter

Research Programmes | Trade:

The Effects of Globalisation on Firms

Overview

We want to understand how reduced transportation costs, lower import tariffs, and a rapidly changing international environment affect firms in advanced and developing countries. We also want to identify and understand the varied responses of firms to those changes. Such an understanding can help in the design and the evaluation of the public policy response to the threats and opportunities presented by globalisation.

A key insight from recent research in international trade is that there is vast heterogeneity in export behaviour. Across a wide range of countries and industries, exporters are larger, more productive, more skill- and capital-intensive, and pay higher wages than non-trading firms. These differences exist even before exporting begins, which suggests self-selection: only the most productive firms are able to overcome the higher costs of entering foreign markets. CEP research shows that trade fosters productivity growth by forcing the lowest-productivity firms to exit, and by inducing firms to shed their less profitable products (Discussion Paper No 769, published in Quarterly Journal of Economics).

When locating stages of production overseas, firms decide what should be done within the boundary of the firm, and what can be outsourced. If a firm elects to keep production within its boundary, it may invest abroad and become a multinational, in which case trade occurs within the firm. Alternatively, production might be outsourced to a standalone supplier, in which case trade occurs at arm’s length. Which activities are likely to be undertaken within the boundaries of the firm? While this is a complex question, CEP research shows that one important factor is the reliability of contracts which allow firms to specify and enforce how arm's length production is performed. Firms in the United States tend to outsource to countries where foreign governance is relatively strong. (Discussion Paper No 978, published in American Economic Review Papers & Proceedings).

Whereas trade economists have traditionally focused on trade in goods, trade in commercial services has been the fastest growing component of international trade over the past two decades. Despite this growing importance, we still know very little. CEP research is filling this gap by providing novel empirical evidence (Discussion Paper No 901, published Journal of International Economics). For example, only around 8 per cent of United Kingdom service firms engage in international trade. Moreover, services traders in the United Kingdom are bigger, more productive, and are more likely to be foreign owned or part of a multinational enterprise.

News Coverage

The CEP's research is often featured in international news coverage and is influential in informing public debate. Some recent coverage discussing work of the Impacts of Globalisation on Firms group include:

Related Publications

These and other related issues have been explored in several recent CEP papers:
cover
CEP Discussion Paper
Productivity As If Space Mattered: An Application to Factor Markets Across China Wenya Cheng, John Morrow and Kitjawat Tacharoen December 2012
Paper No' CEPDP1181:
Read Abstract | Full Paper (pdf)

JEL Classification: D22; D24; J24; J30; O15; R11


Tags: structural estimation; productivity; firm location; china

cover
CEP Discussion Paper
Selection Effects with Heterogeneous Firms Monika Mrázová and J. Peter Neary
October 2012
Paper No' CEPDP1174:
Read Abstract | Full Paper (pdf)

JEL Classification: F23; F15; F12


Tags: foreign direct investment (fdi); heterogeneous firms; proximity-concentration trade-off; r&d with threshold effects; super- and sub-convexity; supermodularity

cover
CEP Discussion Paper
Intermediaries in International Trade: Direct Versus Indirect Modes of Export Andrew B. Bernard, Marco Grazzi and Chiara Tomasi March 2012
Paper No' CEPDP1137:
Read Abstract | Full Paper (pdf)

JEL Classification: D22; F12; F14; L22; L23


Tags: heterogeneous firms; international trade; intermediation; wholesalers; export entry costs; product adding and dropping; exchange rates

cover
CEP Discussion Paper
Institutions and Export Dynamics Luis Araujo, Giordano Mion and Emanuel Ornelas
January 2012
Paper No' CEPDP1118:
Read Abstract | Full Paper (pdf)

JEL Classification: F10; F12; L14


Tags: firm exports; contract enforcement; contracting institutions; firm dynamics

cover
CEP Discussion Paper
Success and Failure of African Exporters Olivier Cadot, Leonardo Iacovone, Denisse Pierola and Ferdinand Rauch
June 2011
Paper No' CEPDP1054:
Read Abstract | Full Paper (pdf)

JEL Classification: F10; F14; O55


Tags: africa; export survival

cover
CEP Discussion Paper
Trade as an Engine of Creative Destruction: Mexican Experience with Chinese Competition Leonardo Iacovone, Ferdinand Rauch and L. Alan Winters September 2010
Paper No' CEPDP0999:
Read Abstract | Full Paper (pdf)

JEL Classification: F14; L11


Tags: china; mexico; multi-product-firm; trade shock

cover
CEP Discussion Paper
Productivity Spreads, Market Power Spreads and Trade Ralf Martin
September 2010
Paper No' CEPDP0997:
Read Abstract | Full Paper (pdf)

JEL Classification: C81; D24; L11; L25


Tags: trade policy; productivity measurement; imperfect competition; productivity dispersion; productivity spread

cover
CEP Discussion Paper
Trade Crisis? What Trade Crisis? Kristian Behrens, Gregory Corcos and Giordano Mion
August 2010
Paper No' CEPDP0995:
Read Abstract | Full Paper (pdf)

JEL Classification: F01; F10; F14.


Tags: trade crisis; trade collapse; margins of trade; firm-level analysis; belgium.

cover
CEP Discussion Paper
Theories of Heterogeneous Firms and Trade Stephen Redding
August 2010
Paper No' CEPDP0994:
Read Abstract | Full Paper (pdf)

JEL Classification: F12; F16; L22


Tags: heterogeneous firms; international trade; within-industry reallocation; selection into exporting

cover
CEP Discussion Paper
The Determinants of Vertical Integration in Export Processing: Theory and Evidence from China Ana Fernandes and Heiwai Tang
May 2010
Paper No' CEPDP0980:
Read Abstract | Full Paper (pdf)

JEL Classification: F14; F23; L14; L33


Tags: intrafirm trade; vertical integration; export processing; outsourcing

cover
CEP Discussion Paper
Intra-Firm Trade and Product Contractibility (Long Version) Andrew B. Bernard, J. Bradford Jensen, Stephen Redding and Peter K. Schott May 2010
Paper No' CEPDP0978:
Read Abstract | Full Paper (pdf)

JEL Classification: F10; F23; L14; L23


Tags: related party trade; imports; contract theory; contractibility; intermedication; human capital; physical capital

cover
CEP Discussion Paper
Sequential Exporting Facundo Albornoz, Hector Calvo-Pardo, Gregory Corcos and Emanuel Ornelas
March 2010
Paper No' CEPDP0974:
Read Abstract | Full Paper (pdf)

JEL Classification: F10; D21; F13


Tags: export dynamics; trade liberalization; experimentation; uncertainty

cover
CEP Discussion Paper
Wholesalers and Retailers in U.S. Trade (Long Version) Andrew B. Bernard, J. Bradford Jensen, Stephen Redding and Peter K. Schott February 2010
Paper No' CEPDP0968:
Read Abstract | Full Paper (pdf)

JEL Classification: F10; F14


Tags: wholesaler; retailer; intermediary; international trade

cover
CEP Discussion Paper
The Organization of Firms Across Countries Nick Bloom, Raffaella Sadun and John Van Reenen
June 2009
Paper No' CEPDP0937:
Read Abstract | Full Paper (pdf)

JEL Classification: L2; M2; O32; O33


Tags: decentralization; trust; rule of law; social capital; theory of the firm


This paper has been published as:
Quarterly Journal of Economics (2012) 127(4): 1663-1705
cover
CEP Discussion Paper
The Margins of US Trade Andrew B. Bernard, J. Bradford Jensen, Stephen Redding and Peter K. Schott
January 2009
Paper No' CEPDP0906:
Read Abstract | Full Paper (pdf)

JEL Classification: F1


Tags: heterogeneous firms; product differentiation; product market entry and exit

cover
CEP Discussion Paper
Service Traders in the UK Holger Breinlich and Chiara Criscuolo
December 2008
Paper No' CEPDP0901:
Read Abstract | Full Paper (pdf)

JEL Classification: F14; F19; F23


Tags: international trade; services; firm-level evidence

cover
CEP Discussion Paper
Protection and International Sourcing Emanuel Ornelas and John L. Turner
December 2008
Paper No' CEPDP0900:
Read Abstract | Full Paper (pdf)

JEL Classification: F13; L23; D23


Tags: international trade; tariffs; hold-up problem; sourcing; organizational form