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Entry barriers to international trade: product versus firm fixed costs

Listed author(s):
  • W. Steingress

Market size matters for exporters if firms must recover fixed costs. This paper uses the relationship between the extensive margins of exports and destination market size to evaluate whether fixed costs operate at the firm or at the product level. If fixed costs are at the firm level, multi-product firms have a cost advantage and dominate international trade. If fixed costs are at the product level, many firms export different varieties of the same product. Using detailed product level data from 40 exporting countries to 180 destination markets, the results indicate that entry barriers operate at the product level. Looking at firm entry within products across time and destinations, I find evidence of spillover effects that reduce fixed costs for product market rivals, increase firm en- try and augment export revenues. The efficiency gains in production through lower product fixed costs outweigh the competition effects from more firm entry. Trade policies encouraging product entry, such as advertising products in destination markets through export promotion agencies, would result in more firm entry and generate higher export revenues.

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File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/working-paper_544_2015.pdf
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Paper provided by Banque de France in its series Working papers with number 544.

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Length: 43 pages
Date of creation: 2015
Handle: RePEc:bfr:banfra:544
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Web page: http://www.banque-france.fr/

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  13. Koenig, Pamina & Mayneris, Florian & Poncet, Sandra, 2010. "Local export spillovers in France," European Economic Review, Elsevier, vol. 54(4), pages 622-641, May.
  14. Lederman, Daniel & Olarreaga, Marcelo & Payton, Lucy, 2010. "Export promotion agencies: Do they work?," Journal of Development Economics, Elsevier, vol. 91(2), pages 257-265, March.
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  16. Artopoulos, Alejandro & Friel, Daniel & Hallak, Juan Carlos, 2013. "Export emergence of differentiated goods from developing countries: Export pioneers and business practices in Argentina," Journal of Development Economics, Elsevier, vol. 105(C), pages 19-35.
  17. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151-1199.
  18. Robert Feenstra & Hong Ma, 2007. "Optimal Choice of Product Scope for Multiproduct Firms under Monopolistic Competition," NBER Working Papers 13703, National Bureau of Economic Research, Inc.
  19. Marcela Eslava & James Tybout & David Jinkins & C. Krizan & Jonathan Eaton, 2015. "A Search and Learning Model of Export Dynamics," 2015 Meeting Papers 1535, Society for Economic Dynamics.
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