Firms in International Trade Firms in International Trade

By Federico Díez, Jesse Mora, and Alan C. Spearot

Firms play a critical role in the global economy. The literature on "firms in trade," which has expanded substantially over the past 20 years, studies how firms, especially the most productive and typically very large firms, self-select into exporting and shape the landscape of international trade and investment. The decisions of the modern exporter are complex and have far-reaching implications for the firm's financial well-being, the workers whom the firm employs, and the consumers who employ its products. Yet the focus on firms is a relatively new development. The classic literature on trade focused mainly on country and industry characteristics to predict the pattern and implications of trade. This paper surveys and analyzes the literature on firms in international trade. It summarizes the key empirical facts that motivate the study of firms in trade, details recent theoretical developments on the micro-foundations of firm behavior in an international context, focusing on how firms self-select into exporting and how firms respond to international shocks, and analyzes a "real world," empirically focused view of exporting, beginning with the growth dynamics of firms expanding to global markets and then addressing the critical financing decisions firms make when engaging in international commerce.

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