Firms in International Trade – Term Paper

Summary statements

In the recent situation in the economic industry, there has been a decrease in importing and exporting activities occurring in firms globally. Economist, however, generally bestow slight devotion to the role of enterprises when debating international trade. In their article, Firms in International Trade, Bernard et al. (2007) summarizes the main differences between trading and non-trading firms, demonstrating how the differences provide a challenge to standard trade models. The article also shows how the current heterogeneous firm models of international trade report the problems of the standard trade models. The authors then utilize the transaction-level U.S trade data to introduce several new conventional facts about firms and trades. The fact would then reveal the general boundary of trade, mainly the number of products traded by the firms and the number of countries with which they trade. These are the key aspects necessary to understand the well-known role of distance in reducing combined trade flows, according to the authors.

Most researchers during the mid-1990s used mega datasets to investigate countries production and trade at the firm level, where it turned out that exporting firms substantially differ those that only serve the domestic market. Globally, exporting firms are commonly considered to be significant, more skilled, more productive, and capital-intensive and pay higher wages when compared to the non-exporting firms. The differences are believed to be prevailing even before the exporting is done and have significant consequences necessary for evaluating the benefits from trade and their dissemination across factors of production. However, current pragmatic research defies traditional models of international trade and focusing on international trade fields that have shifted from country to country towards firms and products instead. The authors elaborate on the advantages that the exporting firms have over domestic firms, and how the international firms benefit the countries into which they located. These are believed ti be the main factors facilitating the growth of the international trade.

The article a simple model of firm heterogeneity, international trade, and wages by Yeaple, (2005) presents the universal equilibrium trade model in which standardized firms select a particular technology from a set of competing technologies and chose employees from a set of workers of heterogeneous skill. In the equilibrium state, the interaction between the features of competing technologies, availability of employees, and international trade costs would lead to a rise in firm heterogeneity. The model creates many of the stylized facts regarding the superiority of firms that make international trade compared to those that do not have implications for the effect on international trade.

For more than 40 years, the significance comparison has been a workhouse for cross-country experimental explores of the international trade flows, particularly the effects of free trade on trade flows. However, this equation is a subject to the same econometric assessment of cross-industry in the United States tariffs and non-tariff barriers on the countrys multilateral imports. Trade policy cannot be considered an exogenous variable, according to the authors. They econometrically address the endogeneity of free trade agreements using the control-function technique, instrumental variable technique, and panel-data techniques. The effect of free trade agreements on trade flow is quintupled.

In his article across-product versus within-product specialization in the international trade, Peter Schott, 2004 adventures the product-level U.S. import data to use in testing trade theory. In his study, he found that despite the fact that the United States continuously sources the similar products from both low and high wage countries, the unit value within products differs systematically with exporter comparative to factor benefactions and exporter production techniques. The fact laid here defies factor-proportions specialization that is available across products but is consistent with products. The data used here are inconsistent and with the recent trade theory models explaining an inverse relationship between price and producer productivity. Several topics discussed on the first assignment explain the reason behind exporting firms being better than the domestic firms. The difference can be assumed to be as a result of the massive market base from the foreign markets, leading to increased revenue and growth of the countys economy. Between the years 2008 and 2009, the international trade eventually collapsed. This can be assumed to as a result of the many factors affecting imports and exports in the United States, the main base for the trade.

Highlighting statements

The key aspect studied in this research is the difference between exporting firms and domestic firms, and how each of them affects the economy of the country negatively or positively and to what extent. It was found that in all circumstances the exporting firms would always be better than domestic firms, from the volume of production, type of services offered, some wages paid the workers and the annual revenue realized. In importance in this and is to be highlighted is the fact that exporting firms are always better than the domestic firms that only imports. This can be assumed to as a result of the full market range for the exporting firm and the favorable price of goods and services in the global market. The exporters meet other with whom they share, gaining significant information which they appropriately employ in their companies. The domestic firms would then find it rough trying to compete in national level. The collapse of the international trade between the years 2008 and 2009 is one aspect highlighted in the study. It is then vital to understand what might have led to the collapse of the trade in that year, with many members of the trade blaming it on the United States downfall.

Discussion on the Findings

Based on the many articles describing the international trade, it is evident that the trade improved many firms, especially those that took part in the trade. Exporting firms turned out to be better than domestic firms in every aspect. The international trade was majorly based in the United States, from where there was product specialization during the trade period. Both the imports and the exports were affected during the trade, with many being as a result of the collapse of exporting firms, most of them being from the United States. As a key member of the international trade, ay factor the United States would affect the international trade globally. The recent reduction in the trade relative and to overall economic activities in the United States resulted in the international trade eventually collapsing in the year 2008-09. This can be interpreted to be due to the monotony of which the trade had, considering that it was majorly based in the United States. International trade improved the economy of the member countries, though the exporting firms that took part in the trade.