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Do falling iceberg costs explain recent U.S. export growth?

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  • Alessandria, George
  • Choi, Horag

Abstract

We study empirically and theoretically the growth of U.S. manufacturing exports from 1987 to 2007. We use plant-level data on exporters' export intensity to identify the changes in iceberg costs over this period. Given this change in iceberg costs, we find that a GE model with heterogeneous establishments and dynamic exporting decision from a sunk cost of starting to export is consistent with both aggregate U.S. export growth and the changes in the number and size of U.S. exporters. The model also captures the gradual response of U.S. exports to the cut in iceberg costs. A model with a static exporting decision generates substantially less trade growth and misses out on the timing of export growth. We also study the interplay between changes in the structure of manufacturing and trade. We find that the growth in trade contributed little to the contraction in U.S. manufacturing while changes in the structure of manufacturing from changes in sectoral productivity, capital intensity, idiosyncratic shocks, and corporate taxation reduced U.S. export growth by as much as 10%.

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  • Alessandria, George & Choi, Horag, 2014. "Do falling iceberg costs explain recent U.S. export growth?," Journal of International Economics, Elsevier, vol. 94(2), pages 311-325.
  • Handle: RePEc:eee:inecon:v:94:y:2014:i:2:p:311-325
    DOI: 10.1016/j.jinteco.2014.08.009
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    1. George Alessandria & Carter Mix, 2021. "Trade Policy is Real News: Theory and Evidence," International Finance Discussion Papers 1330, Board of Governors of the Federal Reserve System (U.S.).
    2. Roc Armenter & Miklós Koren, 2015. "Economies Of Scale And The Size Of Exporters," Journal of the European Economic Association, European Economic Association, vol. 13(3), pages 482-511, June.
    3. Dalton, John, 2013. "A Theory of Just-in-Time and the Growth in Manufacturing Trade," MPRA Paper 48223, University Library of Munich, Germany.
    4. Choi, Chi-Young & Choi, Horag, 2016. "The role of two frictions in geographic price dispersion: When market friction meets nominal rigidity," Journal of International Money and Finance, Elsevier, vol. 63(C), pages 1-27.
    5. Guilloux-Nefussi, Sophie, 2020. "Globalization, market structure and inflation dynamics," Journal of International Economics, Elsevier, vol. 123(C).
    6. George Alessandria & Horag Choi, 2019. "Entry, Trade, and Exporting over the Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(S1), pages 83-126, December.
    7. Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, vol. 86(1), pages 133-140.
    8. Campbell, Douglas L., 2020. "Relative Prices and Hysteresis: Evidence from US Manufacturing," European Economic Review, Elsevier, vol. 129(C).
    9. Vivian Yue & Sangeeta Pratap & George Alessandria, 2010. "Export Dynamics in Large Devaluations," 2010 Meeting Papers 1067, Society for Economic Dynamics.
    10. Alessandria, George & Choi, Horag, 2021. "The dynamics of the U.S. trade balance and real exchange rate: The J curve and trade costs?," Journal of International Economics, Elsevier, vol. 132(C).
    11. Peter Egger & Sergey K. Nigai, 2016. "World-Trade Growth Accounting," CESifo Working Paper Series 5831, CESifo.
    12. George Alessandria & Horag Choi, 2010. "Understanding exports from the plant up," Business Review, Federal Reserve Bank of Philadelphia, issue Q4, pages 1-11.
    13. Alessandria, George & Choi, Horag & Kaboski, Joseph P. & Midrigan, Virgiliu, 2015. "Microeconomic uncertainty, international trade, and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 69(C), pages 20-38.
    14. Bawa, Siraj, 2017. "Corporate Taxation in the Open Economy without Pareto," MPRA Paper 80857, University Library of Munich, Germany, revised Aug 2017.
    15. Petroulakis, Filippos, 2017. "Internal devaluation in currency unions: the role of trade costs and taxes," Working Paper Series 2049, European Central Bank.
    16. Alessandria, George & Avila, Oscar, 2020. "Trade Integration in Colombia: A Dynamic General Equilibrium Study with New Exporter Dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).
    17. Lincoln, William F. & McCallum, Andrew H., 2018. "The rise of exporting by U.S. firms," European Economic Review, Elsevier, vol. 102(C), pages 280-297.
    18. Alessandria, George & Choi, Horag, 2014. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Journal of International Economics, Elsevier, vol. 94(2), pages 207-223.
    19. Jun Nie & Lisa Taylor, 2013. "Economic growth in foreign regions and U.S. export growth," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 31-63.
    20. Jafari Sadeghi, Vahid & Biancone, Paolo Pietro, 2018. "How micro, small and medium-sized enterprises are driven outward the superior international trade performance? A multidimensional study on Italian food sector," Research in International Business and Finance, Elsevier, vol. 45(C), pages 597-606.
    21. Deason, Lauren, 2014. "Trade Under the Threat of Tariff Hikes in General Equilibrium," Conference papers 330259, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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    More about this item

    Keywords

    Export growth; Trade; Sunk costs;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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