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Do falling iceberg costs explain recent U.S. export growth?

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  • George Alessandria
  • Horag Choi

Abstract

Superseded by Working Paper 12-20 ; The authors study the rise in U.S. manufacturing exports from 1987 to 2002 through the lens of a monopolistically competitive model with heterogeneous producers and sunk costs of exporting. Using the model, they infer that iceberg costs fell nearly 27 percent in this period. Given this change in iceberg costs, the authors use the model to calculate the predicted increase in trade. Contrary to the findings in Yi (2003), they find that the exports should have grown an additional 70 percent (78.7 vs. 46.4). The model overpredicts export growth partly because it misses the shift in manufacturing to relatively small establishments that did not invest in becoming exporters. Contrary to the theory, employment was largely reallocated from very large establishments, those with more than 2,500 employees, toward very small manufacturing establishments, those with fewer than 100 employees. The authors also find that very little of the contraction in U.S. manufacturing employment can be attributed to trade.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 10-10.

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Date of creation: 2010
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Handle: RePEc:fip:fedpwp:10-10

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Keywords: Manufactures ; Exports ; Econometric models ; Employment;

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References

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  1. Alan C. Stockman & Linda L. Tesar, 1990. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," NBER Working Papers 3566, National Bureau of Economic Research, Inc.
  2. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2007. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," Econometrica, Econometric Society, Econometric Society, vol. 75(3), pages 837-873, 05.
  3. George Alessandria & Horag Choi, 2007. "Do Sunk Costs of Exporting Matter for Net Export Dynamics?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 122(1), pages 289-336, 02.
  4. Benjamin Bridgman, . "Energy Prices and the Expansion of World Trade," Departmental Working Papers, Department of Economics, Louisiana State University 2003-14, Department of Economics, Louisiana State University.
  5. George Alessandria & Horag Choi, 2011. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Working Papers 11-19, Federal Reserve Bank of Philadelphia.
  6. Benjamin Bridgman, 2008. "Data files for "Energy Prices and the Expansion of World Trade"," Technical Appendices 06-199, Review of Economic Dynamics.
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Cited by:
  1. Dalton, John, 2013. "A Theory of Just-in-Time and the Growth in Manufacturing Trade," MPRA Paper 48223, University Library of Munich, Germany.
  2. Miklos Koren & Roc Armenter, 2009. "Economies of Scale and the Size of Exporters," 2009 Meeting Papers, Society for Economic Dynamics 1269, Society for Economic Dynamics.
  3. Vivian Yue & Sangeeta Pratap & George Alessandria, 2010. "Export Dynamics in Large Devaluations," 2010 Meeting Papers, Society for Economic Dynamics 1067, Society for Economic Dynamics.
  4. George Alessandria & Horag Choi, 2010. "Understanding exports from the plant up," Business Review, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of Philadelphia, issue Q4, pages 1-11.
  5. Benjamin Brishman, 2010. "The Rise of Vertical Specialization Trade," BEA Working Papers, Bureau of Economic Analysis 0051, Bureau of Economic Analysis.
  6. Nie, Jun & Taylor, Lisa, 2013. "Economic growth in foreign regions and U.S. export growth," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 31-63.

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