TRADE COSTS AND JOB FLOWS: EVIDENCE FROM ESTABLISHMENT‐LEVEL DATA

Changes in the costs of trading inputs or final goods affect establishment‐level job flows. Using a longitudinal database containing the universe of manufacturing establishments in California from 1992 to 2004, we find that a decline in input or final‐good trade costs is associated with job destruction in the least productive establishments, job creation in the most productive establishments, and an increase in the death likelihood of the least productive establishments. The evidence is consistent with predictions of models of trade with heterogeneous firms. Additionally, the evidence shows that the effects of input trade costs on establishment‐level job flows are larger than the effects of final‐good trade costs. (JEL F14, F16)