Do Sunk Costs of Exporting Matter for Net Export Dynamics?
AbstractFirms start and stop exporting. Previous research suggests that these export participation decisions alter the comovement of net exports with the real exchange rate. We evaluate these predictions in a general equilibrium environment. Specifically, assuming firms face an up-front, sunk cost of entering foreign markets, and a smaller period-by-period continuation cost, we derive the discrete entry and exit decisions yielding exporter dynamics in an open economy business cycle model. The model's business cycle exporter dynamics are consistent with that of U.S. exporters. However, in contrast to previous partial equilibrium analyses, model results reveal that export decisions have negligible aggregate effects. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Bibliographic InfoArticle provided by MIT Press in its journal The Quarterly Journal of Economics.
Volume (Year): 122 (2007)
Issue (Month): 1 (02)
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Other versions of this item:
- George Alessandria & Horag Choi, 2005. "Do sunk costs of exporting matter for net export dynamics?," Working Papers 05-20, Federal Reserve Bank of Philadelphia.
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