Working Paper: CEPR ID: DP6545
Authors: Anders Akerman; Rikard Forslid
Abstract: This paper modifies the heterogenous firms and trade model by Melitz (2003) by explicitly modelling the entry cost of a firm in a new market as a function of market size. This leads to several new predictions compared to the standard model: The productivity of non exporters and exporters depends on market size. Moreover, manufacturing export shares vary inversely with country size. However, export shares converge (upwards) as markets are integrated. The empirical part of the paper offers support for our model specification.
Keywords: beachhead costs; heterogeneous firms; market size
JEL Codes: D21; F12; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market size (L25) | productivity of exporters and non-exporters (O49) |
| country size (R12) | manufacturing export shares (F14) |
| market integration (F02) | upward convergence in export shares (F62) |