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Selection Effects with Heterogeneous Firms

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  • Peter Neary
  • Monika Mrazova

Abstract

We provide a general characterization of which firms will select alternative ways of serving a market.� If and only if firms' maximum profits are supermodular in production and market-access costs, more efficient firms will select into the activity with lower market-access costs.� Our result applies in a range of models and under a variety of assumptions about market structure.� We show that 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 University of Oxford, Department of Economics in its series Economics Series Working Papers with number 588.

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Date of creation: 01 Dec 2011
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Handle: RePEc:oxf:wpaper:588

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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. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(3), pages 552-580, June.
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Citations

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Cited by:
  1. 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.
  2. Luis Castro & Ben Li & Keith E. Maskus & Yiqing Xie, 2014. "Fixed Export Costs and Export Behavior," CESifo Working Paper Series 4697, CESifo Group Munich.
  3. 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).
  4. Beata Javorcik & Steven Poelhekke, 2014. "Former Foreign Affiliates: Cast Out and Outperformed?," Tinbergen Institute Discussion Papers 14-094/VIII, Tinbergen Institute.
  5. Sergey Kichko & Sergey Kokovin & Evgeny Zhelobodko, 2013. "Trade Patterns and Export Pricing Under Non-CES Preferences," FIW Working Paper series, FIW 124, FIW.
  6. Emily Blanchard & Gerald Willmann, 2013. "Trade, Education, and The Shrinking Middle Class," Kiel Working Papers 1831, Kiel Institute for the World Economy.
  7. 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.
  8. Swati Dhingra & John Morrow, 2012. "The Impact of Integration on Productivity and Welfare Distortions Under Monopolistic Competition," FIW Working Paper series, FIW 088, FIW.
  9. 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.
  10. Andrew B. Bernard & Emily J. Blanchard & Ilke Van Beveren & Hylke Y. Vandenbussche, 2012. "Carry-Along Trade," NBER Working Papers 18246, National Bureau of Economic Research, Inc.
  11. 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.
  12. Friederike Niepmann, 2013. "Banking across borders with heterogeneous banks," Staff Reports, Federal Reserve Bank of New York 609, Federal Reserve Bank of New York.
  13. 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.

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