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Hysteresis in Export Markets

Luca David Opromolla () and Alfonso Irarrazabal ()

International Trade from EconWPA

Abstract: This paper develops a dynamic monopolistic competition model with heterogenous firms to analyze the effects of uncertainty on international trade. We characterize a stationary equilibrium, with N symmetric countries, where firms’ productivities evolve stochastically over time. Our model retains the main results of previous recent papers like Melitz (2003) and Bernard, Eaton, Jensen and Kortum (2003) and provides additional new predictions. Reentry export costs generate hysteresis in export participation creating a band of inaction within the stationary distribution of firms’ productivities. The decision to export becomes history-dependent and new entrants and incumbent firms might sustain temporary negative profits before becoming profitable. Most importantly, the model is very amenable to estimation and simulation, therefore representing a useful tool for analyzing the effects of trade policies. Several moments, like average age, size and productivity of different categories of firms (exporters, entrants, exiters,incumbents), the hazard rate of exiting or of becoming an exporter as a function of age and others have closed-form solutions that are crucial for matching static and dynamic features of the data.

Keywords: Hysteresis; Heterogeneous Firms; Firm Dynamics; Zipf's Law (search for similar items in EconPapers)
JEL-codes: F1 F2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2005-12-02
Note: Type of Document - pdf; pages: 48
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http://econwpa.repec.org/eps/it/papers/0512/0512003.pdf (application/pdf)

Related works:
Journal Article: A theory of entry into and exit from export markets (2013) Downloads
Working Paper: A Theory of Entry and Exit into Exports Markets (2008) Downloads
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpit:0512003

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