Truncated Firm Productivity Distributions and Trade Margins
Cletus Coughlin () and
Subhayu Bandyopadhyay ()
No 2017-18, Working Papers from Federal Reserve Bank of St. Louis
A standard theoretical prediction is that average exports are independent of tariff rates when the underlying distribution of firm productivities is assumed to be the widely-used Pareto distribution. Assuming that the underlying distribution has no upper bound is undoubtedly inaccurate and produces theoretical results at odds with empirical results. In contrast, we show that upper-truncation of the Pareto distribution makes average exports rise with trade liberalization. This result is derived analytically, and is supported by simulations. We extend our analysis to the cases of lognormal and Fréchet distributions, which are also frequently used by trade economists. Our findings for lognormal and Fréchet distributions are qualitatively similar to the findings using the truncated Pareto.
Keywords: Truncated probability distributions; Extensive and intensive margins of trade; Import tariff; Pareto; Lognormal; Fréchet. (search for similar items in EconPapers)
JEL-codes: F1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://research.stlouisfed.org/wp/2017/2017-018.pdf Full text (application/pdf)
https://doi.org/10.20955/wp.2017.018 https://doi.org/10.20955/wp.2017.018 (text/html)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2017-018
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Anna Oates ().