Self-selection into export markets: Does productivity affect entry costs?

Xi Chen () and Frédéric Olland ()

Revue d'économie politique, 2014, vol. 124, issue 4, 537-552

Abstract: In this paper, we develop an empirical strategy based on the treatment evaluation model to show (i) that sunk entry costs exist for French firms and (ii) that firms? productivity significantly affects their level of sunk costs. Given our empirical results, we extend the basic Melitz [2003] model by considering heterogeneous sunk costs of entry into the export market. Our theoretical model highlights the role of heterogeneity in the sunk cost structure and the links between productivity and sunk entry costs. We point out that the Melitz model with homogeneous entry costs may mispredict the self-selection of firms in the export market.

Keywords: firm heterogeneity; international trade; productivity; entry cost; treatment effect (search for similar items in EconPapers)
Date: 2014
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