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Entry barriers to international trade: product versus firm fixed costs

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  • W. Steingress

Abstract

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.

Suggested Citation

  • W. Steingress, 2015. "Entry barriers to international trade: product versus firm fixed costs," Working papers 544, Banque de France.
  • Handle: RePEc:bfr:banfra:544
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    References listed on IDEAS

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    More about this item

    Keywords

    Fixed costs; spillovers; market size.;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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