Working Paper: NBER ID: w16557
Authors: Ivan Cherkashin; Svetlana Demidova; Hiau Looi Kee; Kala Krishna
Abstract: This paper builds a tractable partial equilibrium model in the spirit of Melitz (2003), which incorporates two dimensions of heterogeneity: firms specific productivity shocks and firm-market specific demand shocks. The structural parameters of interest are estimated using only cross-sectional data, and counterfactual experiments regarding the effects of reducing costs, both fixed and marginal, or of trade preferences (with distortionary Rules of Origin) offered by an importing country are performed. Our counterfactuals make a case for "trade as aid" as such policies can create a ""win-win-win" scenario and are less subject to the usual worries regarding the efficacy of direct foreign aid. They also suggest that reducing fixed costs at various levels can be quite effective as export promotion devices, with the exports induced per dollar spent ranging from .4 to 25.
Keywords: Firm Heterogeneity; Costly Trade; Trade Policy; Export Promotion
JEL Codes: F1; F12; F13; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade preferences granted by developed countries (F14) | increased exports from developing countries (Bangladesh) (F63) |
| lowering fixed costs (D21) | increased exports from developing countries (Bangladesh) (F63) |
| preferences can raise the return to entry in the industry (L19) | encouraging more firms to export (F10) |
| eliminating the home yarn requirement (L67) | significantly boost exports (F10) |
| trade preferences granted by developed countries (F14) | positive spillovers to exports to other markets (F69) |