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The Melitz model highlights the importance of the extensive margin (the number of firms exporting) for trade flows. Using the World Bank’s Exporter Dynamics Database (EDD) featuring firm-level exports from 50 countries, we find that around 50 percent of variation in exports is along the extensive margin—a quantitative victory for the Melitz framework. The remaining 50 percent on the intensive margin (exports per exporting firm) contradicts a special case of Melitz with Pareto-distributed firm productivity, which has become a tractable benchmark. This benchmark model predicts that, conditional on the fixed costs of exporting, all variation in exports across trading partners should occur on the extensive margin. We find that moving from a Pareto to a lognormal distribution allows the Melitz model to match the role of the intensive margin in the EDD. We use likelihood methods and the EDD to estimate a generalized Melitz model with a joint lognormal distribution for firm-level productivity, fixed costs and demand shifters, and use “exact hat algebra” to quantify the effects of a decline in trade costs on trade flows and welfare in the estimated model. The welfare effects turn out to be quite close to those in the standard Melitz-Pareto model when we choose the Pareto shape parameter to fit the average trade elasticity implied by our estimated Melitz-lognormal model, although there are significant differences regarding the effects on trade flows.

International trade --- Exports --- Econometric models. --- Costs --- Exports and Imports --- Public Finance --- International Economics --- Production and Operations Management --- Models of Trade with Imperfect Competition and Scale Economies --- Trade: General --- National Government Expenditures and Related Policies: General --- Macroeconomics: Production --- Empirical Studies of Trade --- Trade Policy --- International Trade Organizations --- International economics --- Public finance & taxation --- Macroeconomics --- International trade & commerce --- Public expenditure review --- Productivity --- Trade balance --- Trade facilitation --- Expenditure --- Production --- Revenue administration --- Expenditures, Public --- Industrial productivity --- Balance of trade --- Customs administration --- China, People's Republic of

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We document a broad-based trend in rising cash holdings of firms across major industrialized countries over the last two decades, a trend that is most pronounced for firms engaged strongly in R&D activities. Our contributions to the literature are twofold. First, we develop a simple model that brings together the insights from modern trade theory (Melitz, 2003) with those of contract theory in corporate finance (Holmström and Tirole, 1998) to show that increased openness to trade can result in rising returns to innovation and in turn greater demand for cash as firms insure against innovation-induced liquidity risk. Second, we derive sharp empirical predictions and find supporting evidence for them using firm-level data across major G7 countries during 1995-2014, a period that saw an unprecedented rise in globalization and business innovation.

Corporations --- Finance --- Econometric models. --- Business corporations --- C corporations --- Corporations, Business --- Corporations, Public --- Limited companies --- Publicly held corporations --- Publicly traded corporations --- Public limited companies --- Stock corporations --- Subchapter C corporations --- Business enterprises --- Corporate power --- Disincorporation --- Stocks --- Trusts, Industrial --- Exports and Imports --- Finance: General --- Money and Monetary Policy --- Production and Operations Management --- Capital Budgeting --- Fixed Investment and Inventory Studies --- Models of Trade with Imperfect Competition and Scale Economies --- Management of Technological Innovation and R&D --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Trade: General --- Portfolio Choice --- Investment Decisions --- Macroeconomics: Production --- Monetary economics --- International economics --- Macroeconomics --- Currencies --- Exports --- Liquidity indicators --- Productivity --- Imports --- Money --- International trade --- Liquidity management --- Asset and liability management --- Production --- Liquidity --- Economics --- Industrial productivity --- China, People's Republic of

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Using cross-country national accounts and firm-level data, we document a broad-based trend in rising gross saving and net lending of non-financial corporates across major industrialized countries over the last two decades, though most pronounced in countries with persistent current account surpluses. We find that this trend holds consistently across major industries, and is concentrated among large firms, driven by rising profitability, lower financing costs, and reduced tax rates. At the same time, higher gross corporate saving have not supported a commensurate increase in fixed capital investment, but instead led to a build-up of liquid financial assets (cash). The determinants of corporate cash holding and saving are also broad-based across countries, with the growth in assets of large firms, R&D intensity, and lower effective tax rates accounting for most of the increase over the last 15 years.

Corporations --- Business finance --- Capitalization (Finance) --- Corporate finance --- Corporate financial management --- Corporation finance --- Financial analysis of corporations --- Financial management, Corporate --- Financial management of corporations --- Financial planning of corporations --- Managerial finance --- Going public (Securities) --- Finance. --- Accounting --- Corporate Finance --- Finance: General --- Macroeconomics --- Money and Monetary Policy --- Capital Budgeting --- Fixed Investment and Inventory Studies --- Models of Trade with Imperfect Competition and Scale Economies --- Management of Technological Innovation and R&D --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Portfolio Choice --- Investment Decisions --- General Aggregative Models: General --- Corporate Finance and Governance: General --- Public Administration --- Public Sector Accounting and Audits --- Monetary economics --- Finance --- Ownership & organization of enterprises --- Financial reporting, financial statements --- Currencies --- Liquidity indicators --- National accounts --- Corporate sector --- Financial statements --- Money --- Liquidity management --- Asset and liability management --- Economic sectors --- Public financial management (PFM) --- Liquidity --- Economics --- National income --- Business enterprises --- Finance, Public --- Germany