The Effects of Trade on Organization and Productivity

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  • 1 January 2011
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      • Published in RePEc
Abstract
We develop a model of an economy where firms with heterogenous demands use labor and knowledge to produce. Managers of firms decide the optimal knowledge of its workers and managers, the number of layers of management, and the span of control of each agent. We use the model to analyze the effect of international trade on organizational structure and productivity. Our results indicate that, as a result of a trade liberalization, firms will increase the number of layers of management. The new organization of the average exporter results in higher productivity, although the responses of productivity are heterogenous across these firms. The model has implications for changes in prices, revenues, profits, as well as the organizational characteristics of firms. We calibrate the model to the U.S. economy and show that the quantitative magnitudes of these organizational responses are, in general, small.

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