Welfare Gains to Trade Reform under Firm Heterogeneity
We develop a model of establishment dynamics consistent with the establishment level heterogeneity in exporting and productivity to analyze the welfare consequences of trade reform. Specifically, we assume that firms face an up-front, sunk cost of entering foreign markets and a smaller period-by-period continuation cost. In response to persistent firm-specific productivity shocks, firms start and stop exporting. The model generates exporter hysteresis in that the productivity threshold to start exporting exceeds the threshold to stop exporting. We calibrate the model to match the characteristics and dynamics of U.S. exporters, and quantify the welfare gains to a world-wide elimination of tariffs. We find that the welfare gains to trade reform depend importantly on transition dynamics. The welfare measure that includes transition dynamics exceed the steady state welfare measure by 5.7 percent of lifetime consumption when a 5 percent tariff rate is eliminated. We also find that the trade to GDP ratio increases by 12.6 percentage points following the trade reform through gradually increased export participation of establishments.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||2007|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:red:sed007:551. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.