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Hysteresis in Export Markets

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Author Info
Luca David Opromolla (New York University - Department of Economics)
Alfonso Irarrazabal (New York University - Department of Economics)

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Abstract

This paper develops a dynamic monopolistic competition model with heterogenous firms to analyze the effects of uncertainty on international trade. We characterize a stationary equilibrium, with N symmetric countries, where firms’ productivities evolve stochastically over time. Our model retains the main results of previous recent papers like Melitz (2003) and Bernard, Eaton, Jensen and Kortum (2003) and provides additional new predictions. Reentry export costs generate hysteresis in export participation creating a band of inaction within the stationary distribution of firms’ productivities. The decision to export becomes history-dependent and new entrants and incumbent firms might sustain temporary negative profits before becoming profitable. Most importantly, the model is very amenable to estimation and simulation, therefore representing a useful tool for analyzing the effects of trade policies. Several moments, like average age, size and productivity of different categories of firms (exporters, entrants, exiters,incumbents), the hazard rate of exiting or of becoming an exporter as a function of age and others have closed-form solutions that are crucial for matching static and dynamic features of the data.

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Paper provided by EconWPA in its series International Trade with number 0512003.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 48 pages
Date of creation: 02 Dec 2005
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Handle: RePEc:wpa:wuwpit:0512003

Note: Type of Document - pdf; pages: 48
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Web page: http://129.3.20.41

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Related research
Keywords: Hysteresis; Heterogeneous Firms; Firm Dynamics; Zipf's Law;

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Find related papers by JEL classification:
F1 - International Economics - - Trade
F2 - International Economics - - International Factor Movements and International Business

This paper has been announced in the following NEP Reports:

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.:
  1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December. [Downloadable!] (restricted)
  2. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
    Other versions:
  3. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June. [Downloadable!] (restricted)
    Other versions:
  5. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September. [Downloadable!] (restricted)
  6. Luca David Opromolla & Alfonso Irarrazabal, 2005. "Trade Reforms in a Global Competition Model: the Case of Chile," International Trade 0508007, EconWPA. [Downloadable!]
  7. Richard Baldwin, 1989. "Sunk-Cost Hysteresis," NBER Working Papers 2911, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Erzo G.J. Luttmer, 2004. "The size distribution of firms in an economy with fixed and entry costs," Working Papers 633, Federal Reserve Bank of Minneapolis. [Downloadable!]
  9. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September. [Downloadable!] (restricted)
  10. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November. [Downloadable!] (restricted)
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  11. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March. [Downloadable!]
  12. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August. [Downloadable!] (restricted)
  13. repec:rus:hseeco:122439 is not listed on IDEAS
  14. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November. [Downloadable!] (restricted)
  15. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Rubén Segura-Cayuela & Josep M. Vilarrubia, 2008. "Uncertainty and entry into export markets," Banco de España Working Papers 0811, Banco de España. [Downloadable!]
  2. Andrew Atkeson & Ariel Burstein, 2007. "Innovation, Firm Dynamics, and International Trade," Levine's Working Paper Archive 122247000000001423, David K. Levine. [Downloadable!]
    Other versions:
  3. Jonathan Eaton & Marcela Eslava & Maurice Kugler & James Tybout, . "Export Dynamics in Colombia: Transactions Level Evidence," Borradores de Economia 522, Banco de la Republica de Colombia. [Downloadable!]
    Other versions:
  4. Jonathan Eaton & Marcela Eslava & Maurice Kugler & James Tybout, 2007. "Export Dynamics in Colombia:Firm-Level Evidence," BORRADORES DE ECONOMIA 003957, BANCO DE LA REPÚBLICA. [Downloadable!]
    Other versions:
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