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

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  • George Alessandria
  • Horag Choi

Abstract

We study empirically and theoretically the growth of U.S. manufacturing exports from 1987 to 2007. We identify the change in iceberg costs with plant-level data on the intensity of exporting by exporters. Given this change in iceberg costs, we find that a GE model with heterogeneous establishments and a sunk cost of starting to export is consistent with both aggregate U.S. export growth and the changes in the number and size of U.S. exporters. The model also captures the non-linear dynamics of U.S. export growth. A model without a sunk export cost generates substantially less trade growth and misses out on the timing of export growth. 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. Allowing for faster productivity growth in manufacturing, changes in capital intensity, and some changes in the underlying shock process makes the theory consistent with the changes in the employment size distribution. We also find that the contribution of trade to the contraction in U.S. manufacturing employment is small.

Suggested Citation

  • George Alessandria & Horag Choi, 2012. "Do falling iceberg costs explain recent U.S. export growth?," Working Papers 12-20, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:12-20
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    Cited by:

    1. Bawa, Siraj, 2017. "Corporate Taxation in the Open Economy without Pareto," MPRA Paper 80857, University Library of Munich, Germany, revised Aug 2017.
    2. Petroulakis, Filippos, 2017. "Internal devaluation in currency unions: the role of trade costs and taxes," Working Paper Series 2049, European Central Bank.
    3. 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.
    4. Dalton, John, 2013. "A Theory of Just-in-Time and the Growth in Manufacturing Trade," MPRA Paper 48223, University Library of Munich, Germany.
    5. 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.
    6. S. Guilloux-Nefussi, 2016. "Globalization, Market Structure and Inflation Dynamics," Working papers 610, Banque de France.
    7. Benjamin Brishman, 2010. "The Rise of Vertical Specialization Trade," BEA Working Papers 0051, Bureau of Economic Analysis.
    8. Vivian Yue & Sangeeta Pratap & George Alessandria, 2010. "Export Dynamics in Large Devaluations," 2010 Meeting Papers 1067, Society for Economic Dynamics.
    9. Peter Egger & Sergey K. Nigai, 2016. "World-Trade Growth Accounting," CESifo Working Paper Series 5831, CESifo Group Munich.
    10. George Alessandria & Horag Choi, 2010. "Understanding exports from the plant up," Business Review, Federal Reserve Bank of Philadelphia, issue Q4, pages 1-11.
    11. repec:eee:eecrev:v:102:y:2018:i:c:p:280-297 is not listed on IDEAS
    12. 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.
    13. repec:eee:riibaf:v:45:y:2018:i:c:p:597-606 is not listed on IDEAS
    14. Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, vol. 86(1), pages 133-140.
    15. 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.

    More about this item

    Keywords

    Exports ; Trade;

    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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