Do Non-Exporters Lose From Lower Trade Costs?
Facundo Piguillem () and
Loris Rubini ()
No 132, 2018 Meeting Papers from Society for Economic Dynamics
We challenge the idea that trade liberalizations are detrimental to non-exporters: if they expect to export in the future, larger export profits increase their present value. To do this, we develop a model of international trade, where firm productivity follows a Geometric Brownian Motion, with a drift endogenously determined by innovation. Firms export when reaching a productivity threshold, after which they grow at a constant average rate, generating a firm distribution with Pareto upper tail. Non-exporters grow at an increasing rate, lower than that of exporters. We calibrate the model to US data. The anticipation of future export profits accounts for up to 10% of the value of non-exporters. Reducing trade costs increases export profits and reduces domestic ones. As a result, small non-exporters lose value driven by domestic profits, but larger ones gain because of the anticipation of future exports. This is consistent with empirical studies that find some non-exporters expand after liberalizations. A 1% reduction in trade costs reduces the value of non-exporters by 0.01% on average, but 59% of them actually gain, up to 0.13%, which is more than some exporters.
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Journal Article: Do non‐exporters lose from lower trade costs? (2021)
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