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Entry, Trade, and Exporting over the Cycle

George Alessandria () and Horag Choi ()

Journal of Money, Credit and Banking, 2019, vol. 51, issue S1, 83-126

Abstract: We study how international trade and exporting affect the cyclicality of establishment creation. We build a general equilibrium model with two features: (i) new establishments start small and grow gradually and (ii) exporters are persistently bigger and more productive than nonexporters. When establishments creation costs fluctuate with aggregate productivity, the model generates procyclical fluctuations in domestic establishments and importers. Without international trade, entry is weakly countercyclical and too smooth. The model generates reasonable fluctuations in the stock of importers, exporters, and domestic establishments. With an entry margin, output is hump‐shaped following a productivity shock and this hump is stronger with trade.

Date: 2019
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Handle: RePEc:wly:jmoncb:v:51:y:2019:i:s1:p:83-126