Research Papers in Economics, Department of Economics, Stockholm University
Country Size, Trade, and Productivity: An Analysis of Heterogenous Firms and Differential Beachhead Costs
() 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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