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Country Size, Trade, and Productivity: An Analysis of Heterogenous Firms and Differential Beachhead Costs

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Abstract

This paper modifies the heterogenous firms and trade model by Melitz (2003) by explicitly modelling the beachhead cost of a firm in a new market as a function of market size. This leads to several new predictions compared to the standard model. In particular, the productivity of non exporters and exporters depends on market size. Moreover, manufacturing export shares vary inversely with market size. However, export shares converge (upwards) as markets are integrated. The empirical part of the paper offers support for our model specification.

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  • Akerman, Anders & Forslid, Rikard, 2007. "Country Size, Trade, and Productivity: An Analysis of Heterogenous Firms and Differential Beachhead Costs," Research Papers in Economics 2007:14, Stockholm University, Department of Economics.
  • Handle: RePEc:hhs:sunrpe:2007_0014
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    1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
    2. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    3. Andrew B. Bernard & J. Bradford Jensen, 2004. "Why Some Firms Export," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 561-569, May.
    4. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers Archive 11375, Iowa State University, Department of Economics.
    5. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting Trade: Firms, Industries, and Export Destinations," American Economic Review, American Economic Association, vol. 94(2), pages 150-154, May.
    6. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 903-947.
    7. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
    8. Andrew B. Bernard & J. Bradford Jensen, 1999. "Exporting and Productivity," NBER Working Papers 7135, National Bureau of Economic Research, Inc.
    9. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    10. Thorsten Schank & Claus Schnabel & Joachim Wagner, 2016. "Do Exporters Really Pay Higher Wages? First Evidence from German Linked Employer–Employee Data," World Scientific Book Chapters,in: Microeconometrics of International Trade, chapter 5, pages 177-213 World Scientific Publishing Co. Pte. Ltd..
    11. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    12. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
    13. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151-1199.
    14. Karen Helene Midelfart-Knarvik & Henry G. Overman, 2002. "Delocation and European integration: is structural spending justified?," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 321-359, October.
    15. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
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    Cited by:

    1. Vincenzo Verardi & Joachim Wagner, 2012. "Productivity Premia for German Manufacturing Firms Exporting to the Euro-Area and Beyond: First Evidence from Robust Fixed Effects Estimations," The World Economy, Wiley Blackwell, vol. 35(6), pages 694-712, June.

    More about this item

    Keywords

    Heterogenous Firms; Market Size; Beachhead Costs;

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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