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Department of Economics, Stockholm University Research Papers in Economics, Department of Economics, Stockholm University

No 2007:14:
Country Size, Trade, and Productivity: An Analysis of Heterogenous Firms and Differential Beachhead Costs

Anders Akerman () and Rikard Forslid ()

Abstract: This paper modifies the heterogenous firms and trade model by Melitz (2003) by explicitly modelling the beachhead 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. In particular, the productivity of non exporters and exporters depends on market size. Moreover, manufacturing export shares vary inversely with market size. However, export shares converge (upwards) as markets are integrated. The empirical part of the paper offers support for our model specification.

Keywords: Heterogenous Firms; Market Size; Beachhead Costs; (follow links to similar papers)

JEL-Codes: H32; P16; (follow links to similar papers)

29 pages, July 30, 2007

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