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A theory of entry into and exit from export markets

  • Impullitti, Giammario
  • Irarrazabal, Alfonso A.
  • Opromolla, Luca David

This paper introduces idiosyncratic firm efficiency shocks into a continuous-time general equilibrium model of trade with heterogeneous firms. The presence of sunk export entry costs and efficiency uncertainty gives rise to hysteresis in export market participation. A firm will enter into the export market once it achieves a given size, reflecting its efficiency, but may keep exporting even after its efficiency has fallen below its initial entry level. Some exporters will not be selling as much in the domestic market as other firms that never entered the foreign market. The model captures the qualitative features of firm birth, growth, export market entry and exit, and death found in the empirical literature. We calibrate the model to match relevant statistics of firms' turnover and export dynamics in the United States, and show that the mode of globalization (a reduction in sunk costs as opposed to overhead costs), matters for a firm's selection and persistence in export status. Trade liberalization via a reduction in sunk export entry costs reduces a firm's export status persistence, while the opposite happens when liberalization takes place through a reduction in overhead export costs.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 90 (2013)
Issue (Month): 1 ()
Pages: 75-90

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Handle: RePEc:eee:inecon:v:90:y:2013:i:1:p:75-90
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. 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.
  2. Giammario Impullitti & Omar Licandro, 2013. "Trade, firm selection, and innovation: the competition channel," Discussion Papers 13/04, University of Nottingham, School of Economics.
  3. Fabio Ghironi & Marc J. Melitz, 2004. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," NBER Working Papers 10540, National Bureau of Economic Research, Inc.
  4. Basu, Susanto, 1996. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 719-51, August.
  5. Simeon Djankov & Rafael La Porta & Florencio LopezdeSilanes & Andrei Shleifer, 2000. "The Regulation of Entry," NBER Working Papers 7892, National Bureau of Economic Research, Inc.
  6. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2001. "Market entry costs, producer heterogeneity and export dynamics," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 03-10, Indian Statistical Institute, New Delhi, India.
  7. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  8. 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.
  9. Andrew B. Bernard, 2004. "Exporting and Productivity in the USA," Oxford Review of Economic Policy, Oxford University Press, vol. 20(3), pages 343-357, Autumn.
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  13. George Alessandria & Horag Choi, 2011. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Working Papers 11-19, Federal Reserve Bank of Philadelphia.
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  17. Luttmer, Erzo G.J., 2012. "Technology diffusion and growth," Journal of Economic Theory, Elsevier, vol. 147(2), pages 602-622.
  18. Campa, Jose Manuel, 2004. "Exchange rates and trade: How important is hysteresis in trade?," European Economic Review, Elsevier, vol. 48(3), pages 527-548, June.
  19. Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1103-1144, 08.
  20. 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.
  21. João Amador & Luca Opromolla, 2013. "Product and destination mix in export markets," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(1), pages 23-53, March.
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  24. 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.
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