Abstract
This paper develops a dynamic monopolistic competition model with heterogenous firms to analyze the effects of uncertainty on international trade. We characterize a stationary equilibrium, with N symmetric countries, where firms' productivities evolve stochastically over time. Our model retains the main results of previous recent papers like Melitz (2003) and Bernard, Eaton, Jensen and Kortum (2003) and provides additional new predictions. Reentry export costs generate hysteresis in export participation creating a band of inaction within the stationary distribution of firms' productivities. The decision to export becomes history-dependent and new entrants and incumbent firms might sustain temporary negative profits before becoming profitable. Most importantly, the model is very amenable to estimation and simulation, therefore representing a useful tool for analyzing the effects of trade policies. Several moments, like average age, size and productivity of different categories of firms (exporters, entrants, exiters, incumbents), the hazard rate of exiting or of becoming an exporter as a function of age and others have closed-form solutions that are crucial for matching static and dynamic features of the data.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
