Exports , Borders , Distance , and Plant Size

The fact that large manufacturing plants export relatively more than small plants has been at the foundation of much work in the international trade literature. We examine this fact using Census micro data on plant shipments from the Commodity Flow Survey. We show the fact is not entirely an international trade phenomenon; part of it can be accounted for by the effect of distance, distinct from any border effect. Export destinations tend to be further than domestic destinations, and large plants tend to ship further distances even to domestic locations, as compared with small plants. We develop an extension of the Melitz (2003) model and use it to set up an analysis with model interpretations of ratios between large plant and small plant shipments that can be calculated with the data. We obtain a decomposition of the overall ratio into a term that varies with distance, holding fixed the border, and a term that varies with the border, holding fixed the distance. The distance term accounts for more than half of the overall difference. Thomas J. Holmes Department of Economics University of Minnesota 4-101 Hanson Hall 1925 Fourth Street South Minneapolis, MN 55455 and The Federal Reserve Bank of Minneapolis and also NBER [email protected] John J. Stevens Industrial Output Section, Mail Stop 82 Division of Research and Statistics Board of Governors of the Federal Reserve System Washington, DC 20551 [email protected]