Granular Comparative Advantage

Abstract

Large firms play a pivotal role in international trade. We develop a multisector granular model of trade where sectors host a finite number of firms. Both aggregate and granular firm-level forces shape comparative advantage. The model is estimated using French microdata on firm domestic and export sales. We find that granularity accounts for about 20% of the sectoral variation in export intensity and is more pronounced in highly export-intensive sectors. An extension to a dynamic environment with both idiosyncratic and aggregate shocks reveals that firm dynamics plays a central role in shaping comparative advantage reversals observed in the data.