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Do falling iceberg costs explain recent U.S. export growth?

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  • George Alessandria
  • Horag Choi

Abstract

Superseded by Working Paper 12-20 ; The authors study the rise in U.S. manufacturing exports from 1987 to 2002 through the lens of a monopolistically competitive model with heterogeneous producers and sunk costs of exporting. Using the model, they infer that iceberg costs fell nearly 27 percent in this period. Given this change in iceberg costs, the authors use the model to calculate the predicted increase in trade. Contrary to the findings in Yi (2003), they find that the exports should have grown an additional 70 percent (78.7 vs. 46.4). The model overpredicts export growth partly because it misses the shift in manufacturing to relatively small establishments that did not invest in becoming exporters. Contrary to the theory, employment was largely reallocated from very large establishments, those with more than 2,500 employees, toward very small manufacturing establishments, those with fewer than 100 employees. The authors also find that very little of the contraction in U.S. manufacturing employment can be attributed to trade.

Suggested Citation

  • George Alessandria & Horag Choi, 2010. "Do falling iceberg costs explain recent U.S. export growth?," Working Papers 10-10, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:10-10
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    Cited by:

    1. Roc Armenter & Miklós Koren, 2015. "Economies Of Scale And The Size Of Exporters," Journal of the European Economic Association, European Economic Association, vol. 13(3), pages 482-511, June.
    2. Choi, Chi-Young & Choi, Horag, 2016. "The role of two frictions in geographic price dispersion: When market friction meets nominal rigidity," Journal of International Money and Finance, Elsevier, vol. 63(C), pages 1-27.
    3. Bawa, Siraj, 2017. "Corporate Taxation in the Open Economy without Pareto," MPRA Paper 80857, University Library of Munich, Germany, revised Aug 2017.
    4. Nie, Jun & Taylor, Lisa, 2013. "Economic growth in foreign regions and U.S. export growth," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 31-63.
    5. Benjamin Brishman, 2010. "The Rise of Vertical Specialization Trade," BEA Working Papers 0051, Bureau of Economic Analysis.
    6. Vivian Yue & Sangeeta Pratap & George Alessandria, 2010. "Export Dynamics in Large Devaluations," 2010 Meeting Papers 1067, Society for Economic Dynamics.
    7. Petroulakis, Filippos, 2017. "Internal devaluation in currency unions: the role of trade costs and taxes," Working Paper Series 2049, European Central Bank.
    8. Guilloux-Nefussi, Sophie, 2016. "Globalization, market structure and inflation dynamics," Globalization and Monetary Policy Institute Working Paper 289, Federal Reserve Bank of Dallas.
    9. Alessandria, George & Choi, Horag & Kaboski, Joseph P. & Midrigan, Virgiliu, 2015. "Microeconomic uncertainty, international trade, and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 69(C), pages 20-38.
    10. Peter Egger & Sergey K. Nigai, 2016. "World-Trade Growth Accounting," CESifo Working Paper Series 5831, CESifo Group Munich.
    11. Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, vol. 86(1), pages 133-140.
    12. Dalton, John, 2013. "A Theory of Just-in-Time and the Growth in Manufacturing Trade," MPRA Paper 48223, University Library of Munich, Germany.
    13. George Alessandria & Horag Choi, 2010. "Understanding exports from the plant up," Business Review, Federal Reserve Bank of Philadelphia, issue Q4, pages 1-11.
    14. repec:eee:eecrev:v:102:y:2018:i:c:p:280-297 is not listed on IDEAS

    More about this item

    Keywords

    Manufactures ; Exports ; Econometric models ; Employment;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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