Extensive Margin Research Articles

The role of productive and technological capabilities in export dynamics in developing countries

Productive and technological capabilities are major engines of export. But how they affect export behaviour at the microeconomic level is less clear and many questions remain. This paper empirically investigates their role in export dynamics in 40 developing countries. The analysis shows that, within sectors, countries with greater productive capacities have more exporters, and the exporters are larger and charge higher prices for their products. The results also confirm a positive relationship between technological capabilities and diversification: within sectors, exporters in countries with stronger capabilities tend to export a higher number of products and to more destination markets. Lastly, technological capabilities also play a specific role in the diversification of products and market destinations of high-technology sectors. Thus, even comparing exporters’ behaviour only among developing countries, productive and technological capabilities are found to be strongly related to the extensive and intensive margins of exports, and to diversification and product quality.

International Production Networks Are Overcoming COVID-19 Shocks: Evidence from Japan's Machinery Trade

Abstract This paper investigates the impacts of COVID-19 on international production networks in machinery sectors by shedding light on negative supply shocks, negative demand shocks, and positive demand shocks. Specifically, we examined changes in trade in the trade-fall periods amid COVID-19 in 2020 using Japan's machinery trade at the most disaggregated level and decomposed them into two intensive margins (i.e., the quantity effect and the price effect) and two extensive margins (i.e., the entry effect and the exit effect). Our empirical results show that trade relationships for parts and components were robust even amid COVID-19 and that international production networks in machinery sectors were almost intact. They also demonstrate that COVID-19 brought positive demand shocks for specific products with special demand due to its nature in addition to negative supply shocks and negative demand shocks, which partially explains heterogeneous effects not only among sectors but also among products in the same sector. As of October 2020, Japan's machinery trade seems to have mostly recovered.

Discontinuity in care: Practice closures among primary care providers and patient health care utilization

We evaluate the consequences for patients of being matched to a new primary care provider due to practice closures. Using an event study and population-level data of patients and providers in Denmark, we find that the transition between providers is smooth; among re-matched patients, there is little change in primary care utilization at the extensive margin. Second, we document a 17% increase in fee-for-service per visit and a large increase in the probability that the patient initiates drug therapy targeting chronic and underdiagnosed diseases (hypertension, hyperlipidemia, and diabetes). Additionally, the re-matched patients are more likely to be admitted to inpatient care for these diseases. The increase in therapeutic initiation is not primarily because the new providers are relatively predisposed to prescribing these drugs. Instead, it appears that when patients match to new providers, there is a consequential reassessment of patients’ medical needs which leads to the initiation of new treatment.

The effects of state-led relocation on labor market participation: Evidence from China

The urbanization of China has been accompanied by large-scale state-led relocation (SLR) programs. This paper studies the effects of urban SLR on labor market participation. With three waves of China Household Finance Survey (CHFS), we find that urban SLR reduces labor market participation, on both the extensive margin and the intensive margin. The reduction is stronger for females, and there is some substitute effect between husbands and wives. The reduction is also stronger for individuals who are elder and less educated, and who choose lump sums of monetary compensation. Finally, we find no evidence that urban SLR experience stimulates business creation.

Unfolding Trade Effect in Two Margins of Informality. The Peruvian Case

Abstract This paper studies the effect of an increase in import competition on informality along two margins. It considers the extensive margin, where workers are hired by unregistered employers, and the intensive margin, where even though jobs are carried out by registered firms, employees are off the books. Peru’s relentless informal employment and its unprecedented trade-driven growth provides an ideal case study. Using a rich household survey, this study finds that exposure to trade impacts on informality through two competing and contrasting mechanisms. On the one hand, extensive-informal employment declines as unregistered employers shrink or exit due to their low productivity. On the other hand, intensive-informal employment rises as registered employers reduce costs by hiring informal workers. Furthermore, results suggest that the intensive margin drives the overall effect. Hence, trade liberalization increases informality.

Export adjustment to input trade liberalization: The role of import wholesaling services

AbstractThis paper studies how input trade liberalization affects export performance, by stressing the important role played by import wholesaling services. Using data from China, we find that input tariff cuts imply a decline in aggregate export revenues in mostly direct‐importing sectors, through the exit of varieties from the export market (extensive margin), and a decrease in the foreign sales of surviving varieties (intensive margin). These effects are due to within‐variety efficiency losses, associated with efficiency gains from market share reallocations across varieties. Opposite results are found in sectors that generally rely on wholesalers when importing intermediate inputs.

Household Preferences for Investing in Crowdfunding

Using representative survey data on the Dutch population, we analyze households’ actual participation and stated preferences for crowdfunding involvement at the extensive and intensive margin, with emphasis on the relation with investing in socially responsible assets. We find that crowdfunding investors are higher educated and more future oriented than others, whereas risk aversion plays a negative but insignificant role. Financial literacy is positively associated with knowing about crowdfunding, but not with actual participation. A stated choice preference experiment largely confirms these relations. At the intensive margin, however, results are rather different: Women have a stronger preference for crowdfunding than men do. Financial literacy reduces the preferred share invested in crowdfunding. We find a strong positive relation between crowdfunding and socially responsible investing. We identify several common factors: a desire to contribute to improving society and a lack of confidence in traditional financial institutions. Comparing stated and revealed preferences, we find that the potential for attracting more crowdfunding funders is much smaller than for attracting socially responsible investors.

Exports and firm employment: the roles of R&D and exports to affiliates

ABSTRACT Firm-level data from the Korean manufacturing sector is used to quantify the impact of both the extensive and intensive margins of exporting on employment, emphasizing the role of both firm-level R&D intensity and exports to foreign affiliates. The employment effects of exporting by employment contract status, i.e. regular or non-regular employees, are also separately examined. Here, findings show that a firm’s entry into export markets has a positive effect on its employment of regular workers; further, this positive effect is apparent in firms that belong to the group with the highest level of R&D intensity. With regard to the intensive margin, findings show that the negative impact on regular employment of firms’ export share in total sales stands out in the case of exports to non-affiliates. This negative impact, related to the intensive margin, is apparent in firms belonging to the group with the lowest R&D intensity, which is in line with the results for the extensive margin. The heterogeneous effects of exports depending on both firm-level R&D intensity and exports to foreign affiliates seem to be associated with the uncertainty that is due to the volatility of overseas sales.

The role of wage beliefs in the decision to become a nurse.

In light of skilled-labor shortage, the effect of a change in the wage of nurses on their labor supply is intensely discussed in recent literature. Using extensive data of German 14- to 15-year-olds, I analyze the role of the beliefs about a nurse's wage in the decision to become one. To estimate a partial effect, I select controls and their functional form using post-double-selection, which is a data-driven selection method based on regression shrinkage. Highlighting the importance of wages at the extensive margin of labor supply, the wage beliefs play a positive and statistically significant role. Although information is publicly available, educational choices knowingly suffer from misinformation. I find that especially those who do not become a nurse understate the wage. The results lead to two important policy implications. First, increasing the wage may help to overcome the shortage observed in many countries. Second, providing more information on the (relative) wage may be a successful strategy to attract more individuals into this profession. To assess the sensitivity of the results regarding omitted variable bias, I apply a novel approach. It turns out that potential unobserved confounders would have to be strong to overrule the conclusions.

Drinking during downturn: New evidence from the housing market fluctuations in the United States during the Great Recession

We investigate how the decline in home prices over the Great Recession in the U.S. impacted drinking behavior. We match data on actual and shadow home prices (from Zillow Research) to individuals’ drinking behavior from the Behavioral Risk Factor Surveillance System (BRFSS) by county of residence and year/month of the interview. We improve upon the existing literature by using new measures of exogenous macroeconomic shocks captured by fluctuations in home prices and finding heterogeneous impacts of the downturn based on homeownership. We find that decline in home prices is commonly associated with increases in alcohol consumption, both on extensive and intensive margins. Additionally, we find that the effects are more consistent among homeowners compared to renters. Given that alcohol consumption is one of the leading causes of death in the U.S. and that the COVID-19 pandemic has triggered an economic crisis in many societies, the results have important public health implications.

Food insecurity and COVID-19 risk in low- and middle-income countries.

The COVID‐19 pandemic prompted social distancing, workplace closures, and restrictions on mobility and trade that had cascading effects on economic activity, food prices, and employment in low‐ and middle‐income countries. Using longitudinal data from Bangladesh, Kenya, and Nigeria covering a period from October 2020 to April 2021, the paper assesses whether knowledge of a person infected with COVID‐19 is associated with food insecurity, job loss and business closures, and coping strategies to smooth consumption. The likelihood of households to experience food insecurity at the extensive and intensive margins increased among those who knew an infected person in Bangladesh and Kenya.

Decomposition of extensive and intensive margin impacts of trade policies

AbstractUsing a multi‐region heterogeneous‐firm trade model, this paper develops a method to decompose volumes and values of domestic sales, bilateral trade, total production and consumption into their intensive and extensive margins. With the free‐entry condition, the extensive margin is further decomposed into two subcategories: operating‐extensive margin and entrance/exit‐extensive margin. This method can provide ex ante predictions on gains and losses in the margins of member and nonmember countries following a trade agreement. We apply our decomposition methods to quantitatively analyse the impacts of CETA between Canada and the European Union on the world processed food industry.

What Happens When a Retailer Drops a Product Category? Investigating the Consequences of Ending Tobacco Sales

The paper measures the cross-category spillover effects of a retailer changing its assortment at the extensive margin (by dropping an entire category from its portfolio) on the outcomes for its rivals in the industry.

Advising, gender, and performance: Evidence from a university with exogenous adviser–student gender match

AbstractThis paper provides the first causal evidence on the effects of gender match in the adviser–student relationship (as opposed to the well‐researched instructor–student relationship) on student outcomes along both the intensive and extensive margins. We analyze administrative data from a university with a faculty adviser assignment policy that makes gender pairing between advisers and students exogenous. We find that matching female students with female adviser has a positive and significant effect on retention and grade point average (GPA) upon graduation, particularly for students with academic challenges and non‐science, technology, engineering, and mathematics students. For female students with below‐median high school GPA, gender match is found to raise the odds of graduate school enrollments.

Using Nonlinear Budget Sets to Estimate Extensive Margin Responses: Method and Evidence from the Earnings Test

We estimate the impact of the Social Security Annual Earnings Test (AET) on older workers’ employment. The AET reduces social security claimants’ current benefits in proportion to their earnings in excess of an exempt amount. Using a regression kink design and Social Security Administration data, we document that the discontinuous change in the benefit reduction rate at the exempt amount causes a corresponding change in the slope of the employment rate, suggesting that the extensive margin of labor supply is more sensitive to this policy than commonly thought. We develop a model and method that allow us to translate the behavioral responses into a lower bound estimate of 0.49 for the extensive margin elasticity, which implies more than a 1 percentage point increase in work in the absence of the AET. (JEL H55, J14, J22, J26, J31)

Aid Effectiveness of Aid for Trade: An Empirical Analysis on the Extensive and Intensive Margins of Aid Recipients

Paris Declaration on Aid Effectiveness held in 2005 emphasized the role of Aid for Trade (AFT) on capacity building of developing nations. Past literature showed mixed results regarding the aid effectiveness of foreign aid both theoretically and empirically. To test the impact of foreign aid thoroughly, we first focus on the AFT which purposes are not only stimulating the volume of trade flow but also facilitating the construction of robust infrastructure and environment for developing nations to participate in the global economy independently. Second, we disaggregate bilateral trade into the extensive and intensive margin of international trade to examine whether AFT affects more on the new products traded or incumbent good. Lastly, we conduct Poisson pseudo maximum likelihood (PPML) estimation to control for zero-value observations and possible heteroskedasticity stemming from the sample. With different sample groups, the results indicate that AFT overall benefits the exports of aid recipients. Particularly, AFT from European Union (EU) shows the most considerable and consistent effect on both the new export and incumbent relationships. Furthermore, AFT from the EU facilitates the new export relationship between developing nations with other developing nations, specifically with those without a Free Trade Agreement (FTA) relationship, indicating that the aid from the EU is relatively effective in establishing new trade partners.

Locus of control and saving: The role of saving motives

Using data from a longitudinal survey representative of the Dutch population, we analyze the relationship between saving and locus of control, and we study the underlying mechanisms. Locus of control measures the extent to which individuals perceive their life outcomes to be determined by their own actions, as opposed to external factors. Those who believe to be in control of future outcomes turn out to save more, both at the extensive (decision to save) and intensive margins (amount saved). We investigate the mechanisms behind this relationship. We implement a mediation analysis to examine the role of saving motives, distinguishing between specific and non-specific purposes. The effect of external locus of control is direct, while the effect of internal locus of control is indirect, largely driven by (non-specific) saving motives.

Micro-Level Misallocation and Selection

How large are the aggregate productivity losses from the misallocation of resources across firms? With endogenous selection, microfrictions can induce extensive margin misallocation among firms: too many unproductive firms are active (Zombies), and too many productive firms are inactive (Shadows). Therefore, the same set of measured distortions potentially induces much larger aggregate productivity losses, as the composition of firms is shifted toward unproductive active firms. I develop and calibrate a model with plant-level microdata for Indonesia to quantify aggregate welfare in the presence of extensive margin misallocation. My estimates show that selection can magnify aggregate TFP losses from microdistortions by over 40 percent compared to existing estimates. Realistic values of measurement error even increase the relative importance of extensive margin misallocation. (JEL D22, D24, E23, J24, J31, O14, O15)

The Extensive Margin of Exporting Products: A Firm-Level Analysis

To quantify trade frictions, we examine multiproduct exporters. We build a flexible general-equilibrium model and estimate market entry costs using Brazilian firm-product-destination data under rich demand and market access cost shocks. Our estimates show that additional products farther from a firm’s core competency come at higher production costs, but there are substantive economies of scope in market access costs. Market access costs differ across destinations, falling more rapidly in scope at nearby regions and at destinations with fewer nontariff barriers. We evaluate a counterfactual scenario that harmonizes market access costs across destinations and find global welfare gains similar to eliminating all current tariffs. (JEL D22, F12, F13, F14, O14, O19)

Inflation Dynamics in Pakistan

This study explains the correlation among consumer price behavior and inflation in Pakistan by employing weekly micro data of retail price survey from October 2013 till September 2016, which is considered as the period of high inflation. Inflation is a product of extensive margin (the frequency of price change) and intensive margin (magnitude of price change). The study decompose the variance of inflation into contribution from both margins thus to determine if the prices of various groups of commodities follows State dependent pricing model or Time dependent pricing model. The extensive margin is a source of inflation in most of the State dependent pricing model while intensive margin is a basis of inflation in Time dependent pricing model. The analysis reveals a greater correlation of inflation with the intensive margin of price change compared to the extensive margin. Mounting inflation is although related more with greater frequencies of the price increase and lower frequency of price decrease, however, the size of the price increase and decrease also plays an important role. Findings of the study reveals important role of price change behavior in explaining the inflation dynamics and are believed to assist policy makers in assessing the pricing mechanism and inflation dynamics in Pakistan