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The Impact of Trade with Pure Exporters

Author

Listed:
  • Bo Gao

    (Durham Business School)

  • Mich Tvede

    (Newcastle University)

Abstract

In the present paper we introduce heterogeneity in productivity, entry cost and demand shocks in both domestic and foreign market. Depending on their characteristics firms choose to become pure exporters, ordinary exporters or non-exporters. Pure exporters serve exclusively foreign markets, ordinary exporters both markets and non-exporters exclusively home markets. Pure exporters face lower demand-adjusted foreign entry cost than demand-adjusted domestic entry cost. Pure exporters have lower productivity than ordinary exporters and non-exporters. Therefore depending on the share of pure exporters, the effect of trade on average productivity can be positive or negative. However, the effect of trade on welfare is positive because trade increases the set of available goods. Moreover we explore the effects of trade liberalizations. In particular, a decrease of foreign entry cost across firms pushes some pure exporters and non-exporters out of the market and some ordinary exporters to become pure exporters or non-exporters. Finally, we provide the supportive empirical evidence.

Suggested Citation

  • Bo Gao & Mich Tvede, 2017. "The Impact of Trade with Pure Exporters," Department of Economics Working Papers 2017_05, Durham University, Department of Economics.
    • Handle: RePEc:dur:durham:2017_05
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    References listed on IDEAS

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    More about this item

    Keywords

    Pure Exporters; Market Entry Cost; Trade Liberalization; Productivity Premium;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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