Firm Heterogeneity and Costly Trade : A New Estimation Strategy and Policy Experiments

This paper builds a tractable partial equilibrium model to help explain the role of trade preferences given to developing countries, as well as the efficacy of various subsidy policies. The model allows for firm level heterogeneity in demand and pr...

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Main Authors:	Cherkashin, Ivan, Demidova, Svetlana, Kee, Hiau Looi, Krishna, Kala
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank Group, Washington, DC 2015
Subjects:	ADVERSE IMPACT ADVERTISING AVERAGE PRICE CAPACITY CONSTRAINTS CHANGE IN DEMAND COMPETITIVE PRICES COMPETITIVENESS CONSTANT MARGINAL COSTS CONSUMER PRICES CONSUMER SURPLUS CONSUMERS COST INCREASE CURRENCY DEMAND FUNCTION DEVELOPMENT POLICY DISTORTIONS DOLLAR VALUE DOMESTIC MARKET ECONOMIC OUTLOOK ECONOMIES OF SCALE ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL ANALYSIS EQUILIBRIUM EQUILIBRIUM CONDITIONS ESTIMATION STRATEGY EXPECTED RETURN EXPENDITURE EXPORT GROWTH EXPORT MARKET EXPORT MARKETS EXPORT REVENUE EXPORTER EXPORTERS EXPORTS EXTERNALITIES FAIR FAIRS FIXED COSTS FOREIGN EXCHANGE GDP GDP PER CAPITA GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODEL GENERALIZED SYSTEM OF PREFERENCES HUMAN CAPITAL IMPORT IMPORTS INTERNATIONAL ECONOMICS INTERNATIONAL TRADE LABOR FORCE LDCS LESS DEVELOPED COUNTRIES LEVERAGE LONG-RUN EQUILIBRIUM M1 MARGINAL COST MARGINAL UTILITY MARKET DEMAND MARKET ENTRY MARKET ENTRY COSTS MARKET FORCES MARKET PENETRATION MARKET SHARE MARKET SHARES NET EXPORTS OPEN ECONOMY POLICY ENVIRONMENT POLITICAL ECONOMY POSITIVE SPILLOVERS PRICE INDEX PRICE INDICES PRODUCERS PRODUCT QUALITY PRODUCTION COSTS PRODUCTIVITY QUOTA PRICES QUOTAS RECESSION SALES STANDARD DEVIATIONS SUBSIDY POLICIES SUBSTITUTION SUPPLIERS SURPLUS TAX REVENUES TOTAL EXPORTS TOTAL SALES TRADE BARRIERS TRADE DIVERSION TRADE FACILITATION TRADE LIBERALIZATION TRADE POLICIES TRADE POLICY TRADING PARTNER TRADING PARTNERS TRANSPORTATION COSTS TURNOVER UNCERTAINTIES URUGUAY ROUND UTILITY FUNCTION WAGES WEIGHTS WELFARE GAINS WORLD MARKET WORLD TRADE
Online Access:	http://documents.worldbank.org/curated/en/2015/01/23173044/firm-heterogeneity-costly-trade-new-estimation-strategy-policy-experiments http://hdl.handle.net/10986/21153

id	okr-10986-21153
recordtype	oai_dc
spelling	okr-10986-211532021-04-23T14:04:01Z Firm Heterogeneity and Costly Trade : A New Estimation Strategy and Policy Experiments Cherkashin, Ivan Demidova, Svetlana Kee, Hiau Looi Krishna, Kala ADVERSE IMPACT ADVERTISING AVERAGE PRICE CAPACITY CONSTRAINTS CHANGE IN DEMAND COMPETITIVE PRICES COMPETITIVENESS CONSTANT MARGINAL COSTS CONSUMER PRICES CONSUMER SURPLUS CONSUMERS COST INCREASE CURRENCY DEMAND FUNCTION DEVELOPMENT POLICY DISTORTIONS DOLLAR VALUE DOMESTIC MARKET ECONOMIC OUTLOOK ECONOMIES OF SCALE ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL ANALYSIS EQUILIBRIUM EQUILIBRIUM CONDITIONS ESTIMATION STRATEGY EXPECTED RETURN EXPENDITURE EXPORT GROWTH EXPORT MARKET EXPORT MARKETS EXPORT REVENUE EXPORTER EXPORTERS EXPORTS EXTERNALITIES FAIR FAIRS FIXED COSTS FOREIGN EXCHANGE GDP GDP PER CAPITA GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODEL GENERALIZED SYSTEM OF PREFERENCES HUMAN CAPITAL IMPORT IMPORTS INTERNATIONAL ECONOMICS INTERNATIONAL TRADE LABOR FORCE LDCS LESS DEVELOPED COUNTRIES LEVERAGE LONG-RUN EQUILIBRIUM M1 MARGINAL COST MARGINAL UTILITY MARKET DEMAND MARKET ENTRY MARKET ENTRY COSTS MARKET FORCES MARKET PENETRATION MARKET SHARE MARKET SHARES NET EXPORTS OPEN ECONOMY POLICY ENVIRONMENT POLITICAL ECONOMY POSITIVE SPILLOVERS PRICE INDEX PRICE INDICES PRODUCERS PRODUCT QUALITY PRODUCTION COSTS PRODUCTIVITY QUOTA PRICES QUOTAS RECESSION SALES STANDARD DEVIATIONS SUBSIDY POLICIES SUBSTITUTION SUPPLIERS SURPLUS TAX REVENUES TOTAL EXPORTS TOTAL SALES TRADE BARRIERS TRADE DIVERSION TRADE FACILITATION TRADE LIBERALIZATION TRADE POLICIES TRADE POLICY TRADING PARTNER TRADING PARTNERS TRANSPORTATION COSTS TURNOVER UNCERTAINTIES URUGUAY ROUND UTILITY FUNCTION WAGES WEIGHTS WELFARE GAINS WORLD MARKET WORLD TRADE This paper builds a tractable partial equilibrium model to help explain the role of trade preferences given to developing countries, as well as the efficacy of various subsidy policies. The model allows for firm level heterogeneity in demand and productivity and lets the mass of firms that enter be endogenous. Trade preferences given by one country have positive spillovers on exports to others in this model. Preferences given by the European Union to Bangladesh in an industry raise profits, resulting in entry, and some of these firms also export to the United States. The parameters of the model are estimated using cross sectional customs data on Bangladeshi exports of apparel to the United States and European Union. Counterfactual experiments regarding the effects of reducing costs, both fixed and marginal, or of trade preferences offered by an importing country are performed. The counterfactuals show that reducing fixed costs at various levels has very different effects and suggest that such reductions are more effective in promoting exports when applied at later stages when firms are more committed to production. A subsidy of 1.5 million dollars to industry entry costs raises exports by only 0.4 dollars for every dollar spent, but when applied to fixed costs of production, it raises exports by $25 per dollar spent. 2015-01-07T22:26:23Z 2015-01-07T22:26:23Z 2015-01 http://documents.worldbank.org/curated/en/2015/01/23173044/firm-heterogeneity-costly-trade-new-estimation-strategy-policy-experiments http://hdl.handle.net/10986/21153 English en_US Policy Research Working Paper;No. 7156 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Group, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research South Asia European Union Bangladesh
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ADVERSE IMPACT ADVERTISING AVERAGE PRICE CAPACITY CONSTRAINTS CHANGE IN DEMAND COMPETITIVE PRICES COMPETITIVENESS CONSTANT MARGINAL COSTS CONSUMER PRICES CONSUMER SURPLUS CONSUMERS COST INCREASE CURRENCY DEMAND FUNCTION DEVELOPMENT POLICY DISTORTIONS DOLLAR VALUE DOMESTIC MARKET ECONOMIC OUTLOOK ECONOMIES OF SCALE ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL ANALYSIS EQUILIBRIUM EQUILIBRIUM CONDITIONS ESTIMATION STRATEGY EXPECTED RETURN EXPENDITURE EXPORT GROWTH EXPORT MARKET EXPORT MARKETS EXPORT REVENUE EXPORTER EXPORTERS EXPORTS EXTERNALITIES FAIR FAIRS FIXED COSTS FOREIGN EXCHANGE GDP GDP PER CAPITA GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODEL GENERALIZED SYSTEM OF PREFERENCES HUMAN CAPITAL IMPORT IMPORTS INTERNATIONAL ECONOMICS INTERNATIONAL TRADE LABOR FORCE LDCS LESS DEVELOPED COUNTRIES LEVERAGE LONG-RUN EQUILIBRIUM M1 MARGINAL COST MARGINAL UTILITY MARKET DEMAND MARKET ENTRY MARKET ENTRY COSTS MARKET FORCES MARKET PENETRATION MARKET SHARE MARKET SHARES NET EXPORTS OPEN ECONOMY POLICY ENVIRONMENT POLITICAL ECONOMY POSITIVE SPILLOVERS PRICE INDEX PRICE INDICES PRODUCERS PRODUCT QUALITY PRODUCTION COSTS PRODUCTIVITY QUOTA PRICES QUOTAS RECESSION SALES STANDARD DEVIATIONS SUBSIDY POLICIES SUBSTITUTION SUPPLIERS SURPLUS TAX REVENUES TOTAL EXPORTS TOTAL SALES TRADE BARRIERS TRADE DIVERSION TRADE FACILITATION TRADE LIBERALIZATION TRADE POLICIES TRADE POLICY TRADING PARTNER TRADING PARTNERS TRANSPORTATION COSTS TURNOVER UNCERTAINTIES URUGUAY ROUND UTILITY FUNCTION WAGES WEIGHTS WELFARE GAINS WORLD MARKET WORLD TRADE
spellingShingle	ADVERSE IMPACT ADVERTISING AVERAGE PRICE CAPACITY CONSTRAINTS CHANGE IN DEMAND COMPETITIVE PRICES COMPETITIVENESS CONSTANT MARGINAL COSTS CONSUMER PRICES CONSUMER SURPLUS CONSUMERS COST INCREASE CURRENCY DEMAND FUNCTION DEVELOPMENT POLICY DISTORTIONS DOLLAR VALUE DOMESTIC MARKET ECONOMIC OUTLOOK ECONOMIES OF SCALE ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL ANALYSIS EQUILIBRIUM EQUILIBRIUM CONDITIONS ESTIMATION STRATEGY EXPECTED RETURN EXPENDITURE EXPORT GROWTH EXPORT MARKET EXPORT MARKETS EXPORT REVENUE EXPORTER EXPORTERS EXPORTS EXTERNALITIES FAIR FAIRS FIXED COSTS FOREIGN EXCHANGE GDP GDP PER CAPITA GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODEL GENERALIZED SYSTEM OF PREFERENCES HUMAN CAPITAL IMPORT IMPORTS INTERNATIONAL ECONOMICS INTERNATIONAL TRADE LABOR FORCE LDCS LESS DEVELOPED COUNTRIES LEVERAGE LONG-RUN EQUILIBRIUM M1 MARGINAL COST MARGINAL UTILITY MARKET DEMAND MARKET ENTRY MARKET ENTRY COSTS MARKET FORCES MARKET PENETRATION MARKET SHARE MARKET SHARES NET EXPORTS OPEN ECONOMY POLICY ENVIRONMENT POLITICAL ECONOMY POSITIVE SPILLOVERS PRICE INDEX PRICE INDICES PRODUCERS PRODUCT QUALITY PRODUCTION COSTS PRODUCTIVITY QUOTA PRICES QUOTAS RECESSION SALES STANDARD DEVIATIONS SUBSIDY POLICIES SUBSTITUTION SUPPLIERS SURPLUS TAX REVENUES TOTAL EXPORTS TOTAL SALES TRADE BARRIERS TRADE DIVERSION TRADE FACILITATION TRADE LIBERALIZATION TRADE POLICIES TRADE POLICY TRADING PARTNER TRADING PARTNERS TRANSPORTATION COSTS TURNOVER UNCERTAINTIES URUGUAY ROUND UTILITY FUNCTION WAGES WEIGHTS WELFARE GAINS WORLD MARKET WORLD TRADE Cherkashin, Ivan Demidova, Svetlana Kee, Hiau Looi Krishna, Kala Firm Heterogeneity and Costly Trade : A New Estimation Strategy and Policy Experiments
geographic_facet	South Asia European Union Bangladesh
relation	Policy Research Working Paper;No. 7156
description	This paper builds a tractable partial equilibrium model to help explain the role of trade preferences given to developing countries, as well as the efficacy of various subsidy policies. The model allows for firm level heterogeneity in demand and productivity and lets the mass of firms that enter be endogenous. Trade preferences given by one country have positive spillovers on exports to others in this model. Preferences given by the European Union to Bangladesh in an industry raise profits, resulting in entry, and some of these firms also export to the United States. The parameters of the model are estimated using cross sectional customs data on Bangladeshi exports of apparel to the United States and European Union. Counterfactual experiments regarding the effects of reducing costs, both fixed and marginal, or of trade preferences offered by an importing country are performed. The counterfactuals show that reducing fixed costs at various levels has very different effects and suggest that such reductions are more effective in promoting exports when applied at later stages when firms are more committed to production. A subsidy of 1.5 million dollars to industry entry costs raises exports by only 0.4 dollars for every dollar spent, but when applied to fixed costs of production, it raises exports by $25 per dollar spent.
format	Publications & Research :: Policy Research Working Paper
author	Cherkashin, Ivan Demidova, Svetlana Kee, Hiau Looi Krishna, Kala
author_facet	Cherkashin, Ivan Demidova, Svetlana Kee, Hiau Looi Krishna, Kala
author_sort	Cherkashin, Ivan
title	Firm Heterogeneity and Costly Trade : A New Estimation Strategy and Policy Experiments
title_short	Firm Heterogeneity and Costly Trade : A New Estimation Strategy and Policy Experiments
title_full	Firm Heterogeneity and Costly Trade : A New Estimation Strategy and Policy Experiments
title_fullStr	Firm Heterogeneity and Costly Trade : A New Estimation Strategy and Policy Experiments
title_full_unstemmed	Firm Heterogeneity and Costly Trade : A New Estimation Strategy and Policy Experiments
title_sort	firm heterogeneity and costly trade : a new estimation strategy and policy experiments
publisher	World Bank Group, Washington, DC
publishDate	2015
url	http://documents.worldbank.org/curated/en/2015/01/23173044/firm-heterogeneity-costly-trade-new-estimation-strategy-policy-experiments http://hdl.handle.net/10986/21153
_version_	1764447792075374592

Firm Heterogeneity and Costly Trade : A New Estimation Strategy and Policy Experiments

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