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Learning, Prices, and Firm Dynamics

Author

Listed:
  • Olga Timoshenko

    () (The George Washington University, Department of Economics and The Elliott School of International Affairs)

  • Paulo Bastos

    () (The World Bank)

  • Daniel Dias

    () (Board of Governors of the Federal Reserve System)

Abstract

We document new facts about the evolution of firm performance and prices in international markets, and propose a theory of firm dynamics emphasizing the interaction between learning about demand and quality choice to explain the observed patterns. Using data from the Portuguese manufacturing sector, we find that: (1) firms with longer spells of activity in export destinations tend to ship larger quantities at lower prices; (2) older exporters tend to use more expensive inputs; (3) revenue growth within destinations (conditional on initial size) tends to decline with market experience; and (4) input prices and quantities tend to increase with revenue growth within firms. We develop a model of endogenous input and output quality choices in a learning environment that is able to account for these patterns. Counterfactual simulations reveal that minimum quality standards on traded goods reduce welfare by lowering entry in export markets and reallocating resources from old and large towards young and small firms.
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Suggested Citation

  • Olga Timoshenko & Paulo Bastos & Daniel Dias, 2016. "Learning, Prices, and Firm Dynamics," Working Papers 2016-11, The George Washington University, Institute for International Economic Policy.
  • Handle: RePEc:gwi:wpaper:2016-11
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    References listed on IDEAS

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    1. repec:red:issued:15-260 is not listed on IDEAS
    2. repec:red:issued:16-15 is not listed on IDEAS
    3. Brendan Epstein & Alan Finkelstein Shapiro & Andres Gonzalez Gomez, 2017. "Financial Disruptions and the Cyclical Upgrading of Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 204-224, October.
    4. Fitzgerald, Doireann & Haller, Stephanie & Yedid-Levi, Yaniv, 2016. "How Exporters Grow," Staff Report 524, Federal Reserve Bank of Minneapolis.
    5. Tim Schmidt-Eisenlohr & Ryan Monarch, 2015. "Learning and the Value of Relationships in International Trade," 2015 Meeting Papers 668, Society for Economic Dynamics.
    6. Tim Schmidt-Eisenlohr & Ryan Monarch, 2015. "Learning and the Value of Relationships in International Trade," 2015 Meeting Papers 668, Society for Economic Dynamics.
    7. Andrea Ariu & Florian Mayneris & Mathieu Parenti, 2016. "Providing Services to Boost Goods Exports: Theory and Evidence," Working Papers ECARES ECARES 2016-43, ULB -- Universite Libre de Bruxelles.
    8. Costas Arkolakis & Theodore Papageorgiou & Olga Timoshenko, 2018. "Firm Learning and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 146-168, January.
      • Costas Arkolakis & Theodore Papageorgiou & Olga A. Timoshenko, 2015. "Firm Learning and Growth," Working Papers 2015-5, The George Washington University, Institute for International Economic Policy.
    9. Olga A. Timoshenko & Erick Sager, "undated". "Uncertainty and Trade Elasticities," Working Papers 2017-8, The George Washington University, Institute for International Economic Policy.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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