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Hysteresis and Import Penetration with Decreasing Sunk Costs

Author

Listed:
  • Henry Aray

    (University of Granada)

Abstract

This article proposes an extension of Dixit (1989, Quart. J. Econ.), assuming that potential exporting firms benefit from the experience of firms already settled in the foreign market which allows the sunk cost to diminish. In general, the numerical results show that hysteresis is lower as expected. More interestingly, hysteresis is decreasing with the number of firms. As regards the Dixit case, decreasing sunk cost has a greater impact on entering than on exiting. Finally, the combination of expected depreciation/appreciation rate and sunk cost has striking implications on the import share.

Suggested Citation

  • Henry Aray, 2011. "Hysteresis and Import Penetration with Decreasing Sunk Costs," Working Papers 11-09, Asociación Española de Economía y Finanzas Internacionales.
    • Handle: RePEc:aee:wpaper:1109
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    References listed on IDEAS

    as
    1. Aitken, Brian & Hanson, Gordon H. & Harrison, Ann E., 1997. "Spillovers, foreign investment, and export behavior," Journal of International Economics, Elsevier, vol. 43(1-2), pages 103-132, August.
    2. Klaus Desmet & Marcel Fafchamps, 2005. "Changes in the spatial concentration of employment across US counties: a sectoral analysis 1972--2000," Journal of Economic Geography, Oxford University Press, vol. 5(3), pages 261-284, June.
    3. Avinash Dixit, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 205-228.
    4. Leonardo Becchetti & Stefania Rossi, 2000. "The Positive Effect of Industrial District on the Export Performance of Italian Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 16(1), pages 53-68, February.
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    Cited by:

    1. F. Voulgaris & G. Agiomirgianakis & T. Papadogonas, 2015. "Job creation and job destruction in economic crisis at firm level: the case of Greek manufacturing sectors," International Economics and Economic Policy, Springer, vol. 12(1), pages 21-39, March.

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    More about this item

    Keywords

    Real Options; Exchange Rate; Sunk Cost;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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