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Exporters in Developing Countries: Adjustment to Foreign Market Access after a Trade Policy Shock

Listed author(s):
  • Bown, Chad
  • Porto, Guido

This paper estimates the short-run impact of an unexpected foreign trade liberalization shock on exporting firms and product-level data from a developing country. The economic environment was created when major importers such as the U.S., EU and China imposed new safeguard trade barriers in 2002 on steel imports deriving from developed countries and implicitly provided developing country exporters an unexpected preferential market access shock of up to 30% by exempting them from the barriers. We use firm-level data to estimate the differential impact of this trade liberalization shock on Indian steel firms and the products they produce. We provide evidence that Indian firms with historic export ties to these markets responded more quickly to the changing market conditions in order to increase sales, exports and profits. Furthermore, we present evidence of hysteresis – i.e., exports continue to expand even after the termination of the preferential market access conditions via the removal of the discriminatory import restrictions. In terms of firm-level use of inputs, while the Indian firms that produce these preferenced products increased capacity utilization on average, the historic exporters responded more quickly by making new investment to expand existing capacity. Finally, our data also allows us to explore the role of product-switching to examine characteristics and behavior of firms that entered into these new preferenced-product categories. Entry into these new products was predominantly undertaken by larger firms that had previous experience exporting other types of steel products, a result with implications for understanding how firms overcome the fixed costs of exporting.

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Paper provided by World Trade Institute in its series Papers with number 88.

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Date of creation: 01 May 2010
Handle: RePEc:wti:papers:88
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  1. Chad Bown, 2013. "How Different Are Safeguards from Antidumping? Evidence from US Trade Policies Toward Steel," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(4), pages 449-481, June.
  2. Jonathan Eaton, Marcela Eslava, Maurice Kugler,James Tybout, 1970. "Export Dynamics in Colombia: Firm-Level Evidence," Working Papers eg0036, Wilfrid Laurier University, Department of Economics, revised 1970.
  3. Subramanian, Arvind & Wei, Shang-Jin, 2007. "The WTO promotes trade, strongly but unevenly," Journal of International Economics, Elsevier, vol. 72(1), pages 151-175, May.
  4. Baldwin, Richard, 1988. "Hyteresis in Import Prices: The Beachhead Effect," American Economic Review, American Economic Association, vol. 78(4), pages 773-785, September.
  5. 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.
  6. 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.
  7. 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.
  8. Bruce A. Blonigen & Benjamin H. Liebman & Wesley W. Wilson, 2007. "Trade Policy and Market Power: The Case of the US Steel Industry," NBER Working Papers 13671, National Bureau of Economic Research, Inc.
  9. Kyle Bagwell & Robert W. Staiger, 2011. "What Do Trade Negotiators Negotiate About? Empirical Evidence from the World Trade Organization," American Economic Review, American Economic Association, vol. 101(4), pages 1238-1273, June.
  10. Avinash Dixit, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 205-228.
  11. Bown, Chad P. & Crowley, Meredith A., 2007. "Trade deflection and trade depression," Journal of International Economics, Elsevier, vol. 72(1), pages 176-201, May.
  12. Michael Tomz & Judith L. Goldstein & Douglas Rivers, 2007. "Do We Really Know That the WTO Increases Trade? Comment," American Economic Review, American Economic Association, vol. 97(5), pages 2005-2018, December.
  13. Robert C. Feenstra, 1988. "Quality Change Under Trade Restraints in Japanese Autos," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 131-146.
  14. Alla Lileeva & Daniel Trefler, 2007. "Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants," NBER Working Papers 13297, National Bureau of Economic Research, Inc.
  15. Durling, James P. & Prusa, Thomas J., 2006. "The trade effects associated with an antidumping epidemic: The hot-rolled steel market, 1996-2001," European Journal of Political Economy, Elsevier, vol. 22(3), pages 675-695, September.
  16. De Loecker, Jan, 2007. "Do exports generate higher productivity? Evidence from Slovenia," Journal of International Economics, Elsevier, vol. 73(1), pages 69-98, September.
  17. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
  18. Charan Devereaux & Robert Z. Lawrence & Michael D. Watkins, 2006. "Case Studies in US Trade Negotiation, 2-volume set," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3640, November.
  19. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
  20. Van Biesebroeck, Johannes, 2005. "Exporting raises productivity in sub-Saharan African manufacturing firms," Journal of International Economics, Elsevier, vol. 67(2), pages 373-391, December.
  21. BOWN, CHAD P. & McCULLOCH, RACHEL, 2003. "Nondiscrimination and the WTO Agreement on Safeguards," World Trade Review, Cambridge University Press, vol. 2(03), pages 327-348, November.
  22. Chad P. Bown & Rachel McCulloch, 2004. "The WTO Agreement on Safeguards: An Empirical Analysis of Discriminatory Impact," Chapters,in: Empirical Methods in International Trade, chapter 9 Edward Elgar Publishing.
  23. Richard Baldwin, 1988. "Some Empirical Evidence on Hysteresis in Aggregate US Import Prices," NBER Working Papers 2483, National Bureau of Economic Research, Inc.
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