Do Trade Policy Differences Induce Sorting? Theory and Evidence from Bangladeshi Apparel Exporters
Svetlana Demidova (),
Hiau Looi Kee () and
Kala Krishna ()
No 12725, NBER Working Papers from National Bureau of Economic Research, Inc
This paper provides a new heterogeneous firm model for trade where firms differ in their productivity and experience different market demand shocks. The model incorporates variations in trade policy, trade preferences, and the rules of origin needed to obtain them, to reflect real world differences faced by Bangladeshi garment exporters in the US and EU. We estimate firms' productivity using an extension of the Olley Pakes procedure that accounts for the biases arising from both demand shocks and productivity being unobserved. Predictions of the model are then tested non-parametrically and are shown to be supported empirically.
JEL-codes: F12 F13 (search for similar items in EconPapers)
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Published as Demidova, Svetlana & Kee, Hiau Looi & Krishna, Kala, 2012. "Do trade policy differences induce sorting? Theory and evidence from Bangladeshi apparel exporters," Journal of International Economics, Elsevier, vol. 87(2), pages 247-261.
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