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Exporting to Insecure Markets: a Firm-Level Analysis

Matthieu Crozet, Pamina Koenig and Vincent Rebeyrol

Working Papers from CEPII research center

Abstract: This paper proposes an original approach to investigate the influence of insecurity and institutional quality on international trade. We emphasize that insecurity is hardly comparable with other trade barriers such as tariffs because it does not affect all firms similarly. We develop a monopolistic competition trade model with insecurity as a random additional sunk cost for exporting firms. A higher level of insecurity may dissuade large firms to export, while some smaller ones may be able to enter the export market. Hence, insecurity disrupts firms’ selection into export markets, and this has particular effects on trade margins. Two discriminating predictions are derived from the model and confronted to the data. Using individual French firms exports to 100 destination countries, we find clear evidence corroborating our theoretical predictions.

Keywords: Insecurity; Institutions; firm heterogeneity; trade margins (search for similar items in EconPapers)
JEL-codes: D80 F10 F12 K40 (search for similar items in EconPapers)
Date: 2008-09
New Economics Papers: this item is included in nep-int and nep-law
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