Editor’s note: This is part of a series of stories exploring what Gordon professors are up to in between semesters.
Dr. Smith goes to Washington. Again. In early June, Stephen Smith, professor of economics & business, was invited to speak on a panel at the American Enterprise Institute. On July 23, he traveled to the nation’s capital to present new research at the U.S. International Trade Commission. Along with long time collaborator, Michael Anderson, the Sadler Professor of Economics at Washington and Lee University, and their new co-author Jose Signoret of the USITC’s Office of Economics, Smith discussed their findings regarding India’s export sector. Theirs is the first study to examine the behavior of Indian firms, whose behavior should shed light on whether findings based on U.S., European or Chinese firms should be considered universal. Below is the introduction to their paper:
Export Prices of Indian Firms: An Examination of Market and Firm Characteristics
By Stephen Smith, Michael A. Anderson and Jose Signoret
“How do firms matter in international trade? This has been the focus of intense interest in the international economics literature for close to two decades, and much has been learned. Exporting firms are different from non-exporters—they are larger, have higher productivity and capital intensity, and pay more, among many sharp and now empirically well-established contrasts. A flurry of work in trade theory that explores firm heterogeneity, particularly with respect to productivity differences, has accompanied this empirical work.
Much of the evidence comes from studies using firm-level data from the United States on trade and output. One of the most provocative findings in this literature is that the well-known gravity model result that trade volumes decline with distance arises because of distance’s effect on the extensive margin—that is, because many firms drop out of trade at high distances rather than because all firms trade less. For firms that trade, the average value of trade per product per firm rises with distance (Bernard and Jensen 2007, 122-3). Continue reading