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Do trade policy differences induce sorting? Theory and evidence from Bangladeshi apparel exporters

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  • Demidova, Svetlana
  • Kee, Hiau Looi
  • Krishna, Kala

Abstract

This paper provides a new heterogeneous firm model for trade where firms differ in their productivity and experience different market demand shocks. The model incorporates the variations in trade policy, trade preferences, and the rules of origin needed to obtain them that are faced by Bangladeshi garment exporters to the US and EU. We estimate firm's productivity using an extension of the Olley Pakes procedure that accounts for the biases arising from both demand shocks and productivity being unobserved. Predictions of the model are then tested non-parametrically and are shown to be supported empirically.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 87 (2012)
Issue (Month): 2 ()
Pages: 247-261

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Handle: RePEc:eee:inecon:v:87:y:2012:i:2:p:247-261

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Rules of origin; Firm heterogeneity; Demand shocks;

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References

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  1. Svetlana Demidova, 2008. "Productivity Improvements And Falling Trade Costs: Boon Or Bane?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1437-1462, November.
  2. Katayama, Hajime & Lu, Shihua & Tybout, James R., 2009. "Firm-level productivity studies: Illusions and a solution," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 403-413, May.
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  4. Bernard, A., 1997. "Exceptional Exporter Performance: Cause, Effect, or Both?," Working papers 97-21, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Hiau Looi Kee & Kala Krishna, 2007. "Firm Level Heterogeneous Productivity and Demand Shocks: Evidence from Bangladesh," NBER Working Papers 13698, National Bureau of Economic Research, Inc.
  6. Jan De Loecker, 2007. "Product Differentiation, Multi-product Firms and Estimating the Impact of Trade Liberalization on Productivity," NBER Working Papers 13155, National Bureau of Economic Research, Inc.
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