Differentiated Products, Divided Industries: Firm Preferences over Trade Liberalization

Abstract

The recent focus on firms in international trade suggests two conjectures about preferences over trade policy -only the most productive firms should support freer trade, and industries can be internally divided over reciprocal liberalization. This paper clarifies the content and scope of these claims. The most productive firms are generally not the greatest beneficiaries from trade liberalization and may oppose further liberalization due to increased competition in export markets from compatriot firms. Exporting industries will feature no support for trade if foreign competition is too strong or barriers too unequal. The key analytic factor generating intraindustry division is product differentiation, both directly, by increasing export opportunities for less efficient firms, and by inducing home market effects wherein larger countries are more competitive. The implications of these findings for the distributional effects of liberalization and the study of trade politics are discussed.

The Charmed Life of Superstar Exporters: Survey Evidence on Firms and Trade Policy

“…At this point, we now have the two crucial ingredients for describing a theory of firm preferences over trade (Osgood 2016). On the one hand, because of product differentiation, industries are both import-and export-competing at the same time.…”

“…Our theory builds off of a small but growing literature on firm heterogeneity and trade politics, to which we contribute in three closely related ways (see, e.g., Kim 2014b;Osgood 2016;Plouffe 2012). First, we focus on the political implications of the concentration of export sales in the hands of a small number of highly successful "superstar" exporters (Freund and Pierola 2012;Mayer and Ottaviano 2008).…”

Firms and Global Value Chains: Identifying Firms’ Multidimensional Trade Preferences

“…Our work builds upon the growing literature on firm-level theories of international political economy (Weymouth and Broz, 2013;Plouffe, 2015;Osgood, 2016;Osgood et al, 2017). It is directly related to Meckling and Hughes (2017) who examine the effects of firm's participation in GVCs on their trade preferences.…”

Local Content Requirements Versus Tariff Equivalents: How We Measure Matters

“…The incidence of non‐tariff measures (NTMs), while applied in varying forms for years, has been growing since the crisis. In fact, there is evidence that the rise in globalisation, through GVCs and other cross‐border interactions, has contributed to both the rise in the use of NTMs as well as to their cost (Osgood, ). In this world of GVCs, the cost of protection can be higher than generally thought (Miroudot et al., ).…”