Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

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

Anders Akerman () and Rikard Forslid ()
Additional contact information
Anders Akerman: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Rikard Forslid: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

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

JEL-codes: H32; P16

29 pages, July 30, 2007

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