The paper presents a model of hysteresis in trade which is based on the existence of sunk market-entry costs. The study concentrates on the aspect of two models. In both models an exchange rate overvaluation leads to additional entry by foreign firms. The models differ in the accounts of why the foreign firms do not exit after the exchange rate shock passes.
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Ana Cristina Molina and Marco Fugazza, 2009.
"The determinants of trade survival,"
HEI Working Papers
05-2009, Economics Section, The Graduate Institute of International Studies, revised Jun 2009.
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