Temporary trade and heterogeneous firms

Gábor Békés and Balazs Murakozy

Journal of International Economics, 2012, vol. 87, issue 2, 232-246

Abstract: Using Hungarian firm-transaction level export data, we show that about one third of firm–destination and about one half of firm–product–destination export spells are short-lived, or temporary, each year. This is in odds with theories where comparative advantage is stable and market entry costs are sunk. We show how endogenous choice between variable and sunk cost trade technologies can explain the empirical importance and some characteristics of temporary trade. We build a model in which the likelihood of temporary trade depends on productivity and capital cost of the firm as well as well-known gravity variables of destinations. These predictions are borne out by the data; the likelihood of permanent trade, defined by a simple filter, rises with firm productivity, financial stability, proximity and GDP of destination countries.

Keywords: Export; Hungary; Trade instability; Fixed cost (search for similar items in EconPapers)
JEL-codes: D40 F12 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (37)

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Working Paper: Temporary trade and heterogeneous firms (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:87:y:2012:i:2:p:232-246

DOI: 10.1016/j.jinteco.2011.12.007

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