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Market Size and Entry in International Trade: Product Versus Firm Fixed Costs

Walter Steingress ()

Staff Working Papers from Bank of Canada

Abstract: This paper develops a theoretical framework to infer the nature of fixed costs from the relationship between entry patterns in international markets and destination market size. If fixed costs are at the firm level, firms take advantage of an intrafirm spillover by expanding firm-level product range (scope). Few firms enter with many products and dominate international trade. If fixed costs are at the product level, an interfirm spillover reduces the fixed costs to export for all firms producing the product. Using cross-country data on firm and product, I find empirical evidence consistent with product-level costs. More firms than products enter in larger markets, offering their consumers lower prices and a greater variety of goods within the product category.

Keywords: Firm dynamics; International topics; Trade Integration (search for similar items in EconPapers)
JEL-codes: F12 F14 F23 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2018
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-int
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Journal Article: Market size and entry in international trade: Product versus firm fixed costs (2019) Downloads
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Handle: RePEc:bca:bocawp:18-43