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Market Entry Costs, Producer Heterogeneity, and Export Dynamics

  • Sanghamitra Das
  • Mark J. Roberts
  • James R. Tybout

As the exchange rate, foreign demand, and production costs evolve, domestic producers are continually faced with two choices: whether to be an exporter and, if so, how much to export. We develop a dynamic structural model of export supply that characterizes these two decisions. The model embodies plant-level heterogeneity in export profits, uncertainty about the determinants of future profits, and market entry costs for new exporters. Using a Bayesian Monte Carlo Markov chain estimator, we fit this model to plant-level panel data on three Colombian manufacturing industries. We obtain profit function and sunk entry cost coefficients, and use them to simulate export responses to shifts in the exchange-rate process and several types of export subsidies. In each case, the aggregate export response depends on entry costs, expectations about the exchange rate process, prior exporting experience, and producer heterogeneity. Export revenue subsidies are far more effective at stimulating exports than policies that subsidize entry costs. Copyright The Econometric Society 2007.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2007.00769.x
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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 75 (2007)
Issue (Month): 3 (05)
Pages: 837-873

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Handle: RePEc:ecm:emetrp:v:75:y:2007:i:3:p:837-873
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  1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jenson & Samuel Kortum, 2000. "Plants and Productivity in International Trade," NBER Working Papers 7688, National Bureau of Economic Research, Inc.
  2. Campa, Jose M., 2000. "Exchange rates and trade: How important is hysteresis in trade?," IESE Research Papers D/427, IESE Business School.
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  7. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning By Exporting Important? Micro-Dynamic Evidence From Colombia, Mexico, And Morocco," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 903-947, August.
  8. Rust, J., 1994. "Using Randomization to Break the Curse of Dimensionality," Working papers 9429, Wisconsin Madison - Social Systems.
  9. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
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  13. Andrew B. Bernard & J. Bradford Jensen, 2001. "Why Some Firms Export," NBER Working Papers 8349, National Bureau of Economic Research, Inc.
  14. 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.
  15. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1, March.
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