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Firm exit, technological progress and trade

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  • Schröder, Philipp J.H.
  • Sørensen, Allan

Abstract

The dynamics of export market exit and firm closure have found limited attention in the new heterogeneous-firms trade literature. In fact, several of the predictions on firm survival and exit stemming from this new class of models are at odds with the stylized facts. Empirically, higher productivity firms survive longer, most firm closures are young firms, higher productivity exporters are more likely to continue to export compared to less productive exporters and market exits as well as firm closures are typically preceded by periods of contracting market shares. The present paper shows that the simple inclusion of exogenous economy wide technological progress into the standard Melitz (2003) model generates a tractable dynamic framework that generates endogenous exit decisions of firms in line with the stylized facts. Furthermore, we derive the effects of faster technological progress and trade liberalization on export market exit and firm closure.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 3 ()
Pages: 579-591

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:3:p:579-591

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Intra-industry trade; Entry/exit; Monopolistic competition; Heterogeneous firms; Technological change;

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References

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Citations

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Cited by:
  1. Sanne Hiller & Philipp J.H. Schroeder & Allan Sorensen, 2013. "Export market exit and firm survival: theory and first evidence," Working Paper Series in Economics 262, University of Lüneburg, Institute of Economics.
  2. Igor Pospelov & Stanislav Radionov, 2013. "Multisector monopolistic competition model," HSE Working papers WP BRP 34/EC/2013, National Research University Higher School of Economics.
  3. Ina Charlotte Jäkel, 2013. "Import-push or Export-pull? An Industry-level Analysis of the Impact of Trade on Firm Exit," Economics Working Papers 2013-20, School of Economics and Management, University of Aarhus.

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