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Twin peaks

Author

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  • Defever, Fabrice
  • Riaño, Alejandro

Abstract

Received wisdom suggests that most exporters sell the majority of their output domestically. In this paper, however, we show that the distribution of export intensity not only varies substantially across countries, but in a large number of cases is also bimodal, displaying what we refer to as twin peaks. We reconcile this new stylized fact with an otherwise standard, two-country model of trade in which firms are heterogeneous in terms of the demand they face in each market. We show that when firm destination-specific revenue shifteres are distributed lognormal, gamma, or Frechet with sufficiently high dispersion, the distribution of export intensity has two modes in the boundaries of the support and their height is determined by a country’s size relative to the rest of the world. We estimate the deep parameters characterizing the distribution of export intensity. Our results show that when the conditions for the existence of twin peaks are met, differences in relative market size can explain most of the observed variation in the distribution of export intensity across the world.
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Suggested Citation

  • Defever, Fabrice & Riaño, Alejandro, 2017. "Twin peaks," LSE Research Online Documents on Economics 86598, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:86598
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    File URL: http://eprints.lse.ac.uk/86598/
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    References listed on IDEAS

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    More about this item

    Keywords

    exports; export intensity distribution; bimodality; firm heterogeneity;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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