CREAT: Census Research Exploration and Analysis Tool

Firm Heterogeneity, Misallocation, and Trade

May 2025

Written by: John Chung

Working Paper Number:

CES-25-33

Abstract

To what extent do domestic distortions influence the gains from trade? Using data from Chinese manufacturing surveys and U.S. census records, I document two novel stylized facts: (1) Larger producers in China exhibit lower revenue productivity, whereas larger producers in the U.S. exhibit higher revenue productivity. (2) Larger exporters in China exhibit lower export intensity, whereas larger exporters in the U.S. exhibit higher export intensity. A model of heterogeneous producers shows that only the U.S. patterns are consistent with an efficient allocation. To reconcile the observed patterns in China, I introduce producer- and destination-specific subsidies and estimate the model without imposing functional form assumptions on the joint distribution of productivity and subsidy rates. Accounting for distortions in China leads to substantially smaller estimated gains from trade.

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Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

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:
estimation, production, economist, manufacturing, import, export, manufacturer, monopolistic, produce, shipment, exporting, exporter, subsidy, regressors, exported

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:
Center for Economic Studies, Ordinary Least Squares, Total Factor Productivity, Cobb-Douglas, Organization for Economic Cooperation and Development, North American Industry Classification System, Census Bureau Disclosure Review Board, World Trade Organization, Federal Statistical Research Data Center

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