Abstract
AbstractWe extend the Melitz model to include pure exporters and study how they influence economic performance. We find that the presence of pure exporters lowers the productivity premium of exporters. Moreover, if there is a large portion of pure exporters, then international trade lowers the average productivity, but not welfare. Moreover, we explore how trade liberalization in form of lower entry cost into foreign markets and lower variable export cost influences the distribution of firms between pure exporters, ordinary exporters and non‐exporters.
Highlights
In a dominant part of the literature on international trade it is assumed that firms serve the domestic market or serve both the domestic market and the foreign market
In the present paper we provide a general model of pure exporters, ordinary exporters and non-exporters and study the impact of trade in the presence of pure exporters
These findings are compatible with our analysis suggesting that the average productivity of exporters compared with the average productivity of non-exporters depends on the share of pure exporters, and the average productivity of pure exporters compared with the average productivity of nonexporters depends on the entry costs and demand shocks of the markets
Summary
In a dominant part of the literature on international trade it is assumed that firms serve the domestic market (non-exporters) or serve both the domestic market and the foreign market (ordinary exporters). Estimating total factor productivity, Defever and Riano (2012) and Lu et al (2014) find the productivity of pure exporters is higher than nonexporters while Dai et al (2016) find the productivity of processing exporters (which highly overlap with pure exporters) is lower than productivity of non-exporters These findings are compatible with our analysis suggesting that the average productivity of exporters compared with the average productivity of non-exporters depends on the share of pure exporters, and the average productivity of pure exporters compared with the average productivity of nonexporters depends on the entry costs and demand shocks of the markets. We focus on the choice of which markets to serve and study the impact of trade on average productivity and firm exit and entry in the presence of pure exporters.
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