Enhancing firm productivity seems crucial for IG, given its emphasis on long term productivity growth. Related to the previous discussion on imported capital goods, recent literature suggests that this channel is perhaps the only channel through which trade affects productivity (e.g. Amiti and Konings 2007). An older literature had already highlighted the role of trade as a conduit for the diffusion of technology across borders (see the review by Keller 2004). Thus taking into account productivity changes seems to be both important for the IG agenda and reasonable from the viewpoint of the analytical literature. For completeness, we should mention that there is a parallel literature on the benefits of foreign investment, but these appear to work through backward linkages rather than direct effects on domestic firms operating in the same industry (Javorcik 2004, Rodríguez-Clare 1996). However, foreign ownership itself tends to be correlated with firms’ level of international integration through exports and imported capital goods.

This said, what data would be available for busy policy analysts to use to study how different types of firms might respond to trade shocks? The obvious candidate is the World Bank’s global data set from the Enterprise Surveys, and the most recent rounds of the survey included information about firms’ level of integration in terms of foreign ownership (share of capital owned by foreigners), foreign input use (share of foreign inputs in total inputs), and export intensity (share of sales sold abroad). Table 2 provides a list of over 100 countries with this type of information, as well as summary statistics for these three variables. The table also reports the fraction of each country’s sample of firms which answered the relevant questions.

It is noteworthy that not all firms answered the relevant questions, and thus analysts need to worry about selectivity bias when using these data. From an IG perspective, it might be useful to assess the potential magnitude of this selectivity bias by exploring the link between firm size and the probability of providing information about firm integration. Table 3 reports Probit estimates of the probability of a firm providing data for the three variables. Only the key variable on foreign input use appears to be systematically correlated with the size of firms, proxied by the (log of) the number of employees. Thus when using these data to do either descriptive or econometric analyses, analysts do need to worry about selectivity bias, because the probability of observing foreign input use is positively correlated with size. Hence we might spuriously conclude that size is an important determinant of integration, when in reality the problem for small firms might really be about reporting but this might not necessarily be an economic issue.

Figure 3 further explores the role of size. It plots the predicted values of foreign input use, export intensity and foreign ownership, from Fractional Logit estimation with the global dataset.<sup>7</sup> Size does appear to be systematically correlated with firm integration, but only the relationship with foreign input use appears to be linear; the other two appear closer to an exponential function. In any case, these results would imply that larger (and potentially more capable and productive firms) have either benefitted more from integration or would benefit more if future trade shocks reduce the costs of imported inputs or raise the relative price of exports. However, a quick inspection of results by industry

> 7 It is prudent to estimate this relationship with a Fractional Logit estimator, because the dependent variables are truncated and the relationship is not necessarily linear.

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