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Selection Effects With Heterogeneous Firms

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  • Mrázová, Monika
  • Neary, J Peter

Abstract

We characterize how firms select between alternative ways of serving a market. ``First-order" selection effects, whether firms enter or not, are extremely robust. "Second-order" ones, how firms serve a market conditional on entry, are less so: more efficient firms will select into the entry mode with lower market-access costs, if and only if firms' maximum profits are supermodular in production and market access costs. Supermodularity holds in many cases but not in all. Exceptions include FDI (both horizontal and vertical) when demands are "sub-convex" (i.e., less convex than CES), fixed costs that vary with access mode, and R&D with threshold effects.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9288.

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Date of creation: Jan 2013
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Handle: RePEc:cpr:ceprdp:9288

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Keywords: Foreign Direct Investment (FDI); Heterogeneous Firms; Proximity-Concentration Trade-Off; R&D with Threshold Effects; Super- and Sub-Convexity; Supermodularity;

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References

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  1. Paula Bustos, 2009. "Trade Liberalization, Exports and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinean Firms," 2009 Meeting Papers, Society for Economic Dynamics 1029, Society for Economic Dynamics.
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Citations

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Cited by:
  1. Bernard, Andrew B. & Blanchard, Emily & van Beveren, Ilke & Vandenbussche, Hylke, 2012. "Carry-Along Trade," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9067, C.E.P.R. Discussion Papers.
  2. Emily Blanchard & Gerald Willmann, 2013. "Trade, Education, and The Shrinking Middle Class," Kiel Working Papers 1831, Kiel Institute for the World Economy.
  3. Mrázová, Monika & Neary, J Peter, 2014. "Together at Last: Trade Costs, Demand Structure, and Welfare," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9839, C.E.P.R. Discussion Papers.
  4. Beata Javorcik & Steven Poelhekke, 2014. "Former Foreign Affiliates: Cast Out and Outperformed?," Tinbergen Institute Discussion Papers 14-094/VIII, Tinbergen Institute.
  5. Peter Arendorf Bache & Anders Laugesen, 2013. "Trade Liberalisation and Vertical Integration," Economics Working Papers, School of Economics and Management, University of Aarhus 2013-14, School of Economics and Management, University of Aarhus.
  6. Swati Dhingra & John Morrow, 2012. "The Impact of Integration on Productivity and Welfare Distortions Under Monopolistic Competition," FIW Working Paper series, FIW 088, FIW.
  7. Sergey Kichko & Sergey Kokovin & Evgeny Zhelobodko, 2013. "Trade Patterns and Export Pricing Under Non-CES Preferences," FIW Working Paper series, FIW 124, FIW.
  8. Friederike Niepmann, 2013. "Banking across borders with heterogeneous banks," Staff Reports 609, Federal Reserve Bank of New York.
  9. Beata Javorcik & Steven Poelhekke, 2014. "Former foreign affiliates: Cast out and outperformed?," DNB Working Papers, Netherlands Central Bank, Research Department 435, Netherlands Central Bank, Research Department.
  10. Luis Castro & Ben Li & Keith Maskus & Yiqing Xie, 2014. "Fixed Export Costs and Export Behavior," Boston College Working Papers in Economics 855, Boston College Department of Economics.
  11. Peter Neary & Monika Mrazova, 2013. "Not so demanding: Preference structure, firm behavior, and welfare," Economics Series Working Papers 691, University of Oxford, Department of Economics.
  12. Peter Arendorf Bache & Anders Laugesen, 2013. "Monotone Comparative Statics for the Industry Composition," Economics Working Papers, School of Economics and Management, University of Aarhus 2013-10, School of Economics and Management, University of Aarhus.
  13. PARENTI, Mathieu & ,, 2013. "Large and small firms in a global market: David vs. Goliath," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2013058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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