Working Paper: NBER ID: w27934
Authors: George A. Alessandria; Costas Arkolakis; Kim J. Ruhl
Abstract: We review the literature that studies the dynamics of firms in foreign markets, both at the intensive and extensive margins, and their aggregate implications. We first summarize a set of micro facts on exporter entry, expansion, contraction, and exit and macro facts about the response of aggregate trade flows to trade-policy and business-cycle shocks. We then present the canonical model developed in the literature to account for these facts and discuss its connection to the empirical evidence. We show how three model features — future uncertain profits, an investment in market access, and high depreciation of that access upon exit — generate transition dynamics and long-run aggregate outcomes from a cut in tariffs. The model and its extensions contribute to our understanding of the dynamics of trade integration and the evolution of future trade barriers. We discuss the key challenges faced by the canonical model, possible extensions, and applications of the framework to recent global events.
Keywords: firm dynamics; trade; exporter behavior; trade policy
JEL Codes: F1; F11; F12; F14; F15; F41; F61; F62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| past exporting activity (F10) | current export status (F10) |
| past export intensity (F14) | exporter exit rates (F10) |
| firm size and past export activity (L25) | entry rate into exporting (F10) |
| changes in trade policy (F13) | aggregate trade response (E10) |