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Country Size, Productivity and Trade Share Convergence: An Analysis of Heterogenous Firms and Country Size Dependent Beachhead

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  • Forslid, Rikard
  • Akerman, Anders

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.

Suggested Citation

  • Forslid, Rikard & Akerman, Anders, 2007. "Country Size, Productivity and Trade Share Convergence: An Analysis of Heterogenous Firms and Country Size Dependent Beachhead," CEPR Discussion Papers 6545, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6545
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    References listed on IDEAS

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    5. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Shon Ferguson & Rikard Forslid, 2019. "Sizing Up the Impact of Embassies on Exports," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(1), pages 278-297, January.
    2. Tadashi Ito & Toshihiro Okubo, 2016. "The Impact of the Euro on the Quality of Trade: Evidence from the European Union," Manchester School, University of Manchester, vol. 84(4), pages 506-527, July.

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    More about this item

    Keywords

    Beachhead costs; Heterogenous firms; Market size;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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