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Exporting to Insecure Markets: a Firm-Level Analysis

  • Matthieu Crozet
  • Pamina Koenig
  • Vincent Rebeyrol

This paper proposes an original approach to investigate the influence of insecurity and institutional quality on international trade. We emphasize that insecurity is hardly comparable with other trade barriers such as tariffs because it does not affect all firms similarly. We develop a monopolistic competition trade model with insecurity as a random additional sunk cost for exporting firms. A higher level of insecurity may dissuade large firms to export, while some smaller ones may be able to enter the export market. Hence, insecurity disrupts firms’ selection into export markets, and this has particular effects on trade margins. Two discriminating predictions are derived from the model and confronted to the data. Using individual French firms exports to 100 destination countries, we find clear evidence corroborating our theoretical predictions.

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Paper provided by CEPII research center in its series Working Papers with number 2008-13.

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Date of creation: Sep 2008
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Handle: RePEc:cii:cepidt:2008-13
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  1. Mirza, Daniel & Verdier, Thierry, 2006. "Are lives a substitute for livelihoods ? Terrorism, security, and U.S. bilateral imports," Policy Research Working Paper Series 4094, The World Bank.
  2. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
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