Firm Heterogeneity and Costly Trade : A New Estimation Strategy and Policy Experiments

Cherkashin, Ivan ; Demidova, Svetlana ; Kee, Hiau Looi ; Krishna, Kala

World Bank Group, Washington, DC

关键词: ADVERSE IMPACT;    ADVERTISING;    AVERAGE PRICE;    CAPACITY CONSTRAINTS;    CHANGE IN DEMAND;   

DOI  :  10.1596/1813-9450-7156
RP-ID  :  WPS7156

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

This paper builds a tractable partialequilibrium model to help explain the role of tradepreferences given to developing countries, as well as theefficacy of various subsidy policies. The model allows forfirm level heterogeneity in demand and productivity and letsthe mass of firms that enter be endogenous. Tradepreferences given by one country have positive spillovers onexports to others in this model. Preferences given by theEuropean Union to Bangladesh in an industry raise profits,resulting in entry, and some of these firms also export tothe United States. The parameters of the model are estimatedusing cross sectional customs data on Bangladeshi exports ofapparel to the United States and European Union.Counterfactual experiments regarding the effects of reducingcosts, both fixed and marginal, or of trade preferencesoffered by an importing country are performed. Thecounterfactuals show that reducing fixed costs at variouslevels has very different effects and suggest that suchreductions are more effective in promoting exports whenapplied at later stages when firms are more committed toproduction. A subsidy of 1.5 million dollars to industryentry costs raises exports by only 0.4 dollars for everydollar spent, but when applied to fixed costs of production,it raises exports by $25 per dollar spent.