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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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    Cited by:

    1. Albornoz, Facundo & Calvo Pardo, Héctor F. & Corcos, Gregory & Ornelas, Emanuel, 2012. "Sequential exporting," Journal of International Economics, Elsevier, vol. 88(1), pages 17-31.
    2. Alfonso Irarrazabal & Andreas Moxnes & Luca David Opromolla, 2015. "The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs," The Review of Economics and Statistics, MIT Press, vol. 97(4), pages 777-792, October.
    3. Portugal-Perez, Alberto, 2009. "Assessing the impact of political economy factors on rules of origin under NAFTA," Policy Research Working Paper Series 4848, The World Bank.
    4. Cherkashin, Ivan & Demidova, Svetlana & Kee, Hiau Looi & Krishna, Kala, 2015. "Firm heterogeneity and costly trade: A new estimation strategy and policy experiments," Journal of International Economics, Elsevier, vol. 96(1), pages 18-36.
    5. Amit K. Khandelwal & Peter K. Schott & Shang-Jin Wei, 2013. "Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters," American Economic Review, American Economic Association, vol. 103(6), pages 2169-2195, October.
    6. Vannoorenberghe, G., 2012. "Firm-level volatility and exports," Journal of International Economics, Elsevier, vol. 86(1), pages 57-67.
    7. Kee, Hiau Looi, 2015. "Local intermediate inputs and the shared supplier spillovers of foreign direct investment," Journal of Development Economics, Elsevier, vol. 112(C), pages 56-71.
    8. Fabrice Defever & Alejandro Riano, 2017. "Twin peaks," Discussion Papers 2017-15, University of Nottingham, GEP.
    9. Hiau Looi Kee & Kala Krishna, 2008. "Firm-Level Heterogeneous Productivity and Demand Shocks: Evidence from Bangladesh," American Economic Review, American Economic Association, vol. 98(2), pages 457-462, May.
    10. Hu, Zhongzhong & Rodrigue, Joel & Tan, Yong & Yu, Chunhai, 2017. "Product Churning, Reallocation, and Chinese Export Growth," MPRA Paper 81813, University Library of Munich, Germany.
    11. Demidova, Svetlana & Krishna, Kala, 2008. "Firm heterogeneity and firm behavior with conditional policies," Economics Letters, Elsevier, vol. 98(2), pages 122-128, February.
    12. Pamela Bombarda & Elisa Gamberoni, 2013. "Firm Heterogeneity, Rules Of Origin, And Rules Of Cumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 307-328, February.
    13. Horst Raff & Joachim Wagner, 2010. "Intra-industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry," The World Economy, Wiley Blackwell, vol. 33(8), pages 1006-1022, August.
    14. repec:spr:weltar:v:153:y:2017:i:3:d:10.1007_s10290-017-0284-2 is not listed on IDEAS
    15. Rosario Crinò & Paolo Epifani, 2009. "Productivity, Quality and Export Behavior (Revised version of: Firm-Export Intensity and Productivity, September 2011)," Development Working Papers 271, Centro Studi Luca d'Agliano, University of Milano.
    16. Hu, Zhongzhong & Rodrigue, Joel & Tan, Yong & Yu, Chunhai, 2017. "Product churning, reallocation, and Chinese export growth," Journal of Economic Behavior & Organization, Elsevier, vol. 143(C), pages 147-164.
    17. Feenstra, Robert & Kee, Hiau Looi, 2008. "Export variety and country productivity: Estimating the monopolistic competition model with endogenous productivity," Journal of International Economics, Elsevier, vol. 74(2), pages 500-518, March.
    18. repec:wbk:wbpubs:28422 is not listed on IDEAS

    More about this item

    Keywords

    Rules of origin; Firm heterogeneity; Demand shocks;

    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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