Do sunk costs of exporting matter for net export dynamics?

George Alessandria () and Horag Choi ()

No 05-20, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Not all firms export every period. Firms enter and exit foreign markets. Previous research has suggested that these export participation decisions have significant aggregate implications. In particular, it has been argued that these export decisions are important for the comovements of net exports and the real exchange rate. In this paper, the authors evaluate these predictions in a general equilibrium environment. Specifically, assuming that firms face an up-front, sunk cost of entering foreign markets and a smaller period-by-period continuation cost, they derive the discrete entry and exit decisions yielding exporter dynamics in an otherwise standard equilibrium open economy business cycle model. The authors show that the export decisions of firms in the model are influenced by the business cycle in a manner consistent with evidence presented for U.S. exporters. However, in contrast to previous partial equilibrium analyses, model results reveal that the aggregate effects of these export decisions are negligible.

Keywords: Exports; Foreign exchange rates (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2005
View list of references View citations in EconPapers

Downloads: (external link)
http://www.philadelphiafed.org/research-and-data/p ... rs//2005/wp05-20.pdf (application/pdf)

Related works:
Journal Article: Do Sunk Costs of Exporting Matter for Net Export Dynamics? (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fedpwp:05-20

Ordering information: This working paper can be ordered from
http://www.phil.frb.org/econ/wps/index.html

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().