Exporting to Insecure Markets: a Firm-Level Analysis
AbstractThis paper proposes an original approach to investigate the influence of insecurity and institutional quality on international trade. We emphasize that insecurity is hardly comparable with other trade barriers such as tariffs because it does not affect all firms similarly. We develop a monopolistic competition trade model with insecurity as a random additional sunk cost for exporting firms. A higher level of insecurity may dissuade large firms to export, while some smaller ones may be able to enter the export market. Hence, insecurity disrupts firms’ selection into export markets, and this has particular effects on trade margins. Two discriminating predictions are derived from the model and confronted to the data. Using individual French firms exports to 100 destination countries, we find clear evidence corroborating our theoretical predictions.
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Bibliographic InfoPaper provided by CEPII research center in its series Working Papers with number 2008-13.
Date of creation: Sep 2008
Date of revision:
Insecurity; Institutions; firm heterogeneity; trade margins;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
- F10 - International Economics - - Trade - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-13 (All new papers)
- NEP-INT-2008-09-13 (International Trade)
- NEP-LAW-2008-09-13 (Law & Economics)
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