 Firm Heterogeneity, Export Participation, and Trade ReformGeorge Alessandria and Horag Choi No 795, 2006 Meeting Papers from Society for Economic Dynamics Abstract: This paper evaluates the welfare gains to trade reform in a model of endogenous export participation. Specifically, assuming that firms face an up-front, sunk cost of entering foreign markets and a smaller period-by-period continuation cost, we derive the discrete entry and exit decisions yielding exporter dynamics in an otherwise standard equilibrium open economy model. Lowering tariffs increases export participation by increasing the rate of entry and lowering the rate of exit from foreign markets. In contrast with previous work that does not include sunk costs of exporting or idiosyncratic firm productivity shocks, we find smaller welfare gains. With sunk costs the selection gain in productivity from increased entry of relatively productive firms is offset in part by the prolonged participation of the least productive firms. Consideration of transition dynamics also substantially lowers the welfare gains to trade reform Keywords: Trade Liberalization; Firm Heterogeneity; Sunk Costs; Welfare (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:red:sed006:795 Access Statistics for this paper More papers in 2006 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC. |
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