Advanced Search
MyIDEAS: Login

Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization

Contents:

Author Info

  • George Alessandria
  • Horag Choi

Abstract

The authors study the effects of tariffs in a dynamic variation of the Melitz (2003) model, a monopolistically competitive model with heterogeneity in productivity across establishments and fixed costs of exporting. With fixed costs of starting to export that are on average 3.7 times as large as the costs incurred to continue as an exporter, the model can match both the size distribution of exporters and annual transition in and out of exporting among US manufacturing establishments. The authors find that the tariff equivalent of these fixed costs is nearly 30 percentage points. They use the calibrated model to estimate the effect of reducing tariffs on welfare, trade, and export participation. The authors find sizeable gains to moving to free trade equivalent to 1.03 percent of steady state consumption. Considering the transition dynamics following the cut in tariffs, they find that the model predicts economic activity overshoots its steady state, with the peak in output coming 10 years after the trade reform. Because of this overshooting, steady state changes in consumption understate the welfare gain to trade reform. The authors also find simpler trade models that abstract from these export dynamics provide a poor approximation of the aggregate responses from our more general model.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers/2011/wp11-19R.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 11-19.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:fip:fedpwp:11-19

Contact details of provider:
Postal: 10 Independence Mall, Philadelphia, PA 19106-1574
Web page: http://www.philadelphiafed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.phil.frb.org/econ/wps/index.html

Related research

Keywords: International trade ; Tariff;

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Baldwin, Richard & Robert-Nicoud, Frédéric, 2005. "Trade and Growth with Heterogeneous Firms," CEPR Discussion Papers 4965, C.E.P.R. Discussion Papers.
  2. Richard Baldwin & Paul R. Krugman, 1986. "Persistent Trade Effects of Large Exchage Rate Shocks," NBER Working Papers 2017, National Bureau of Economic Research, Inc.
  3. George Alessandria & Joseph Kaboski & Virgiliu Midrigan, 2008. "Inventories, lumpy trade, and large devaluations," Working Paper Series WP-08-07, Federal Reserve Bank of Chicago.
  4. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  5. Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, vol. 115, pages 171-199.
  6. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
  7. Aubhik Khan & Julia K. Thomas, 2006. "Idiosyncratic Shocks and the Role of Nonconvexities in Plant and Aggregate Investment Dynamics," 2006 Meeting Papers 294, Society for Economic Dynamics.
  8. Ghironi, Fabio & Melitz, Marc J, 2004. "International Trade and Macroeconomic Dynamics with Heteroegenous Firms," CEPR Discussion Papers 4595, C.E.P.R. Discussion Papers.
  9. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  10. Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 205-28, May.
  11. Ariel Burstein & Andrew Atkeson, 2009. "Innovation, Firm Dynamics, and International Trade," 2009 Meeting Papers 186, Society for Economic Dynamics.
  12. David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society.
  13. Richard E. Baldwin & Rikard Forslid, 2006. "Trade Liberalization with Heterogenous Firms," NBER Working Papers 12192, National Bureau of Economic Research, Inc.
  14. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2007. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," Econometrica, Econometric Society, vol. 75(3), pages 837-873, 05.
  15. Jhonatan Eaton & Marcela Eslava & Maurice Kugler & James Tybout, . "Export Growth in Colombia: Firm-Level Evidence," Borradores de Economia 446, Banco de la Republica de Colombia.
  16. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  17. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
  18. Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1103-1144, 08.
  19. Timothy Dunne & John Haltiwanger & John Baldwin, 1994. "A Comparison of Job Creation and Job Destruction in Canada and the United States," Working Papers 94-2, Center for Economic Studies, U.S. Census Bureau.
  20. George Alessandria & Horag Choi, 2005. "Do sunk costs of exporting matter for net export dynamics?," Working Papers 05-20, Federal Reserve Bank of Philadelphia.
  21. Esteban Rossi-Hansberg & Mark L. J. Wright, 2006. "Establishment size dynamics in the aggregate economy," Staff Report 382, Federal Reserve Bank of Minneapolis.
  22. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932.
  23. repec:rus:hseeco:122439 is not listed on IDEAS
  24. Fernando Alvarez & Robert E. Lucas, 2005. "General Equilibrium Analysis of the Eaton-Kortum Model of International Trade," NBER Working Papers 11764, National Bureau of Economic Research, Inc.
  25. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
  26. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November.
  27. George Alessandria & Horag Choi, 2007. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Working Papers 07-17, Federal Reserve Bank of Philadelphia.
  28. Virgiliu Midrigan, 2005. "Menu Costs, Multi-Product Firms and Aggregate Fluctuations," Macroeconomics 0511004, EconWPA.
  29. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedpwp:11-19

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diane Rosenberger).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.