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Learning and Selection into Exporting

Author

Listed:
  • Theodore Papageorgiou

    (Pennsylvania State University)

  • Costas Arkolakis

    (Yale University)

Abstract

We incorporate learning in a monopolistically competitive model of trade with heterogeneous firms. Exporting firms face uncertainty about the demand their product faces in a given market and decide how much marketing to invest in. The incorporation of marketing in the model is essential because it allows learning to affect the growth rate of sales: firms that realize that their product faces high demand are willing to devote more resources to market it and as a result their sales grow. The model is analytically tractable to a large extent, and we derive closed form expressions for the growth rate of sales. Furthermore, it is consistent with the large turnover of young exporters observed in the data and it implies a higher variability in their growth rates. We are currently evaluating the predictions of the model regarding the relationship between growth rates and exporting age of the firm. Additionally, we plan to assess the ability of the model to quantitatively match the turnover of exporting firms and the growth of their sales as documented by Eaton, Eslava, Krizan, Kugler and Tybout (2008).

Suggested Citation

  • Theodore Papageorgiou & Costas Arkolakis, 2009. "Learning and Selection into Exporting," 2009 Meeting Papers 183, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:183
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    Cited by:

    1. Hayakawa, Kazunobu & Ito, Tadashi & Okubo, Toshihiro, 2017. "On the stability of intra-industry trade," Journal of the Japanese and International Economies, Elsevier, vol. 45(C), pages 1-12.

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