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Do trade policy differences induce sorting? Theory and evidence from Bangladeshi apparel exporters

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  • Demidova, Svetlana
  • Kee, Hiau Looi
  • Krishna, Kala

Abstract

This paper provides a new heterogeneous firm model for trade where firms differ in their productivity and experience different market demand shocks. The model incorporates the variations in trade policy, trade preferences, and the rules of origin needed to obtain them that are faced by Bangladeshi garment exporters to the US and EU. We estimate firm's productivity using an extension of the Olley Pakes procedure that accounts for the biases arising from both demand shocks and productivity being unobserved. Predictions of the model are then tested non-parametrically and are shown to be supported empirically.

Suggested Citation

  • Demidova, Svetlana & Kee, Hiau Looi & Krishna, Kala, 2012. "Do trade policy differences induce sorting? Theory and evidence from Bangladeshi apparel exporters," Journal of International Economics, Elsevier, vol. 87(2), pages 247-261.
  • Handle: RePEc:eee:inecon:v:87:y:2012:i:2:p:247-261
    DOI: 10.1016/j.jinteco.2011.12.008
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    More about this item

    Keywords

    Rules of origin; Firm heterogeneity; Demand shocks;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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