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Do Trade Policy Differences Induce Sorting? Theory and Evidence from Bangladeshi Apparel Exporters

  • Svetlana Demidova
  • Hiau Looi Kee
  • Kala Krishna

This paper provides a new heterogeneous firm model for trade where firms differ in their productivity and experience different market demand shocks. The model incorporates variations in trade policy, trade preferences, and the rules of origin needed to obtain them, to reflect real world differences faced by Bangladeshi garment exporters in the US and EU. We estimate firms' productivity using an extension of the Olley Pakes procedure that accounts for the biases arising from both demand shocks and productivity being unobserved. Predictions of the model are then tested non-parametrically and are shown to be supported empirically.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12725.

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Date of creation: Dec 2006
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Publication status: published as Demidova, Svetlana & Kee, Hiau Looi & Krishna, Kala, 2012. "Do trade policy differences induce sorting? Theory and evidence from Bangladeshi apparel exporters," Journal of International Economics, Elsevier, vol. 87(2), pages 247-261.
Handle: RePEc:nbr:nberwo:12725
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