Market Penetration Costs and Trade Dynamics
I introduce trade dynamics into a static model of international trade with product differentiation, heterogeneous productivity firms, and increasing marginal market penetration costs. I interpret firms as ideas that materialize into production, where an idea is a way to produce a differentiated good with a given productivity. Adapting a stochastic process similar to Reed, the model endogenously generates a right tail cross-sectional Pareto distribution of firms’ productivities based on two minimal assumptions: continuous entry of ideas at a certain rate and productivities of ideas that evolve according to a geometric Brownian motion. The cross-sectional predictions of the model for the distribution of domestic and exporting sales of firms are in line with firm-level data. In addition, the model delivers new predictions consistent with panel data observations on domestic and exporting firm-level sales. It predicts that many small firms enter and exit the market very frequently and that the growth rate as well as the variance of the growth rate of sales is higher for small firms.
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:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:red:sed008:548. 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 references are entirely missing, you can add them using this form.