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How costly is exporting? An empirical assessment of trade model with heterogeneous firms

Author

Listed:
  • Golovan, Sergei

    (New Economic School (NES), Moscow;)

  • Volchkova, Natalya

    (New Economic School (NES); Russian Foreign Trade Academy (RFTA), Moscow)

Abstract

Foreign market access cost, explored by Melitz (2003) in the heterogeneous firm model of international trade, is one of the essential assumptions that ensure a nice fit of model results to stylized facts. Selection of more productive firms into exporters is guaranteed by the excess of export fixed costs, adjusted for variable trade costs, over fixed costs of production. While there is empirical evidence on export cost structure at the level of firms, there has been no evaluation of the overall size of these costs. This paper aims at filling the gap. First, the model of Melitz (2003) is extended to allow asymmetries between trading countries. Then, the parametric relation between aggregated economic parameters is derived, which allows estimating the ratio of fixed costs. Then the relation is estimated empirically for the universe of Russian firms from 2014 to 2019, and results indicate that the foreign market access costs are comparable to the fixed cost of production in this setting. These findings provide evidence of the empirical relevance of the partitioning condition.

Suggested Citation

  • Golovan, Sergei & Volchkova, Natalya, 2022. "How costly is exporting? An empirical assessment of trade model with heterogeneous firms," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 68, pages 93-116.
  • Handle: RePEc:ris:apltrx:0460
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    More about this item

    Keywords

    heterogeneous firms model of trade; fixed costs of export; partitioning condition; Russian exporters.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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