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Do Sunk Costs of Exporting Matter for Net Export Dynamics?

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Author Info
George Alessandria
Horag Choi

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Abstract

Firms start and stop exporting. Previous research suggests that these export participation decisions alter the comovement of net exports with the real exchange rate. We evaluate these predictions in a general equilibrium environment. Specifically, assuming firms face an up-front, sunk cost of entering foreign markets, and a smaller period-by-period continuation cost, we derive the discrete entry and exit decisions yielding exporter dynamics in an open economy business cycle model. The model's business cycle exporter dynamics are consistent with that of U.S. exporters. However, in contrast to previous partial equilibrium analyses, model results reveal that export decisions have negligible aggregate effects. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/qjec.122.1.289
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Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 122 (2007)
Issue (Month): 1 (02)
Pages: 289-336
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Handle: RePEc:tpr:qjecon:v:122:y:2007:i:1:p:289-336

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  1. Robert B. Avery & Allen N. Berger, 1988. "Risk-based capital and off-balance sheet activities," Proceedings, Federal Reserve Bank of Chicago, pages 261-287.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. George Alessandria & Joe Kaboski & Virgiliu Midrigan, 2007. "Lumpy Trade and Large Devaluations," Working Papers CAS_RN_2007_4, Laboratory for Macroeconomic Analysis. [Downloadable!]
  2. George Alessandria & Horag Choi, 2007. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Working Papers 07-17, Federal Reserve Bank of Philadelphia. [Downloadable!]
  3. George Alessandria & Joseph Kaboski & Virgiliu Midrigan, 2008. "Inventories, lumpy trade, and large devaluations," Working Papers 08-3, Federal Reserve Bank of Philadelphia. [Downloadable!]
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  4. Jang Ping Thia, 2008. "The Impact of Trade on Aggregate Productivity and Welfare with Heterogeneous Firms and Business Cycle Uncertainty," CEP Discussion Papers dp0883, Centre for Economic Performance, LSE. [Downloadable!]
  5. Christopher Gust & Sylvain Leduc & Robert J. Vigfusson, 2006. "Trade integration, competition, and the decline in exchange-rate pass-through," International Finance Discussion Papers 864, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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