Using matched firm-worker data from Danish manufacturing, we observe firm-to-firm worker movements and find that firms that hired workers from more productive firms experience productivity gains one year after the hiring. The productivity gains associated with hiring from more productive firms are equivalent to 0.35 percent per year for an average firm. Surviving a variety of statistical controls, these gains increase with education, tenure, and skill level of new hires, persist for several years after the hiring was done, and remain broadly similar for different industries and measures of productivity. Competing explanations for these gains, knowledge spillovers in particular, are discussed. (JEL D24, J24, J62, L60, O33)

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We show that control function estimators (CFEs) of the firm production function, such as Olley–Pakes, may be biased when productivity evolves with a firm‐specific intercept, in which case the correctly specified control function will contain a firm‐specific term, omitted in the standard CFEs. We develop an estimator that is free from this bias by introducing firm fixed effects in the control function. Applying our estimator to the data, we find that it outperforms the existing CFEs in terms of capturing persistent unobserved heterogeneity in firm productivity. Our estimator involves minimal modification to the standard CFE procedures and can be easily implemented using common statistical software.

This paper studies the effect of foreign lobbies on trade policy of a country which is a member of a Free Trade Agreement (FTA). It uses a monopolistically competitive political economy model in which the government determines external tariffs endogenously. The effect of foreign lobbying under the FTA is examined empirically using Canadian industry-level trade data that allow differentiating of lobby groups by the country of origin. The analysis suggests that the presence of foreign lobbying has a significant effect on the domestic trade policy. The heterogeneity of foreign lobbies is also important: the presence of an organized lobbying group in an FTA partner country tends to raise trade barriers while an organized lobbying group of exporters from outside of the FTA is associated with less protection.

In this paper, we investigate both theoretically and empirically the e¤ects of free trade agreements (FTAs) on the tari¤s of non-member countries. Our theoretical framework draws on the comparative advantage based trade model of Horn, Maggi, and Staiger (2010). In this model, since marginal costs of production are increasing with output, if a few countries form an FTA and start trading more with each other, they simultaneously become less willing to export to rest of the world-a phenomenon we call external trade diversion. Such diversion reduces the ability and the incentive of non-member countries to manipulate their terms of trade, a mechanism that induces them to lower their tari¤s on FTA members. We provide an empirical con…rmation of this insight using industrylevel bilateral trade data for 192 importing and 253 exporting countries, along with the information on all FTAs formed in the world during 1989-2011. Our analysis provides a rather convincing veri…cation of the terms of trade theory since the formation of an FTA between a few countries can be reasonably interpreted as an exogenous event from the perspective of the rest of the world.