Do Sunk Costs of Exporting Matter for Net Export Dynamics

Firms start and stop exporting. Previous research suggests that these export participation decisions alter the comovement of net exports with the real exchange rate. We evaluate these predictions in a general equilibrium environment. Specifically, assuming firms face an up-front, sunk cost of entering foreign markets, and a smaller period-by-period continuation cost, we derive the discrete entry and exit decisions yielding exporter dynamics in an open economy business cycle model. The model's business cycle exporter dynamics are consistent with that of U.S. exporters. However, in contrast to previous partial equilibrium analyses, model results reveal that export decisions have negligible aggregate effects.

[1]  Horag Choi,et al.  Firm Heterogeneity, Export Participation, and Trade Reform , 2006 .

[2]  Marc J. Melitz,et al.  International Trade and Macroeconomic Dynamics with Heterogeneous Firms , 2004 .

[3]  Horag Choi,et al.  Export Decisions and International Business Cycles , 2004 .

[4]  Sandra A. Rivera,et al.  Short-run and long-run industry-level estimates of U.S. Armington elasticities , 2003 .

[5]  Allen C. Head.  Aggregate Fluctuations with National and International Returns to Scale , 2002 .

[6]  Harald Uhlig,et al.  On Adjusting the Hodrick-Prescott Filter for the Frequency of Observations , 2002, Review of Economics and Statistics.

[7]  J. Heathcote,et al.  Financial Autarky and International Business Cycles , 2002 .

[8]  Marcelo Veracierto.  Plant level irreversible investment and equilibrium business cycles , 2002 .

[9]  Marcia Millon Cornett,et al.  Bank Performance around the Introduction of a Section 20 Subsidiary , 2002 .

[10]  A. Bernard,et al.  Why Some Firms Export , 2001, Review of Economics and Statistics.

[11]  P. Kehoe,et al.  International Business Cycles with Endogenous Incomplete Markets , 2000 .

[12]  Paul Klein.  Using the generalized Schur form to solve a multivariate linear rational expectations model , 2000 .

[13]  Ellen R. McGrattan,et al.  Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates? , 2000 .

[14]  C. Engel.  Comments on Obstfeld and Rogoff's "the Six Major Puzzles in International Macroeconomics: Is There a Common Cause?" , 2000 .

[15]  J. Eaton,et al.  Plants and Productivity in International Trade , 2000 .

[16]  Sukkyun Chung,et al.  Productivity and the Decision to Export: Micro Evidence from Taiwan and South Korea , 1998 .

[17]  D. Fraser,et al.  On the wealth and risk effects of commercial bank expansion into securities underwriting: An analysis of Section 20 subsidiaries1 , 1998 .

[18]  J Wagner,et al.  Export entry and exit by German firms , 1998 .

[19]  A. Bernard,et al.  Exceptional Exporter Performance: Cause, Effect, or Both? , 1997 .

[20]  Mark J. Roberts,et al.  The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs , 1997 .

[21]  E. Prescott,et al.  Postwar U.S. Business Cycles: An Empirical Investigation , 1997 .

[22]  João A. C. Santos.  Commercial Banks in the Securities Business: A Review , 1996 .

[23]  Julapa Jagtiani,et al.  Risk and Market Segmentation in Financial Intermediaries' Returns , 1996 .

[24]  Saul Lach,et al.  Is "Learning-by-Exporting" Important? Micro-Dynamic Evidence from Colombia, Mexico and Morocco , 1996 .

[25]  J. Benassy,et al.  Taste for variety and optimum production patterns in monopolistic competition , 1996 .

[26]  Philip E. Strahan,et al.  Historical Patterns and Recent Changes in the Relationship between Bank Holding Company Size and Risk , 1995 .

[27]  Simon H. Kwan,et al.  An analysis of inefficiencies in banking , 1995 .

[28]  Marianne Baxter.  International Trade and Business Cycles , 1995 .

[29]  Mario J. Crucini,et al.  Business Cycles and the Asset Structure of Foreign Trade , 1994 .

[30]  D. Backus,et al.  Consumption and real exchange rates in dynamic economies with non-traded goods , 1993 .

[31]  Finn E. Kydland,et al.  International Business Cycles: Theory and Evidence , 1993 .

[32]  A. Mullineux,et al.  Business Cycles: Theory and Evidence , 1993 .

[33]  Finn E. Kydland,et al.  Web interface for "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?" , 1992 .

[34]  Finn E. Kydland,et al.  Dynamics of the Trade Balance and the Terms of Trade: the S-Curve , 1992 .

[35]  Patrick J. Kehoe,et al.  International Real Business Cycles , 1992, Journal of Political Economy.

[36]  L. Tesar,et al.  Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements , 1990 .

[37]  A. Dixit.  Entry and Exit Decisions under Uncertainty , 1989, Journal of Political Economy.

[38]  Avinash Dixit,et al.  Hysteresis, Import Penetration, and Exchange Rate Pass-Through , 1989 .

[39]  Sergio Rebelo,et al.  Production, growth and business cycles: II. New directions , 1988 .

[40]  J. Boyd,et al.  The profitability and risk effects of allowing bank holding companies to merge with other financial firms: a simulation study , 1988 .

[41]  Charles I. Plosser,et al.  Growth and Business Cycles I. The Basic Neoclassical Model , 1988 .

[42]  Jay Shanken,et al.  Multivariate proxies and asset pricing relations: Living with the Roll critique , 1987 .

[43]  P. Krugman,et al.  Persistent Trade Effects of Large Exchage Rate Shocks , 1986 .

[44]  Paul S. Armington.  A Theory of Demand for Products Distinguished by Place of Production (Une théorie de la demande de produits différenciés d'après leur origine) (Una teoría de la demanda de productos distinguiéndolos según el lugar de producción) , 1969 .

[45]  A. Venables,et al.  Export Growth in Developing Countries: Market Entry and Bilateral Trade Flows , 2002 .

[46]  David E. Cook.  Market entry and international propagation of business cycles , 2002 .

[47]  including © notice, is given to the source. Market Entry Costs, Producer Heterogeneity, and Export Dynamics , 2001 .

[48]  Simon H. Kwan.  Securities activities by commercial banking firms' Section 20 subsidiaries: risk, return and diversification benefits , 1998 .

[49]  Andrew B. Bernard,et al.  Exporters, Jobs, and Wages in U.S. Manufacturing: 1976-1987 , 1995 .

[50]  Stephanie Schmitt-Grohé,et al.  Comparing Four Models of Aggregate Fluctuations due to Self-Fulfilling Expectations , 1995 .

[51]  R. Feenstra.  New Product Varieties and the Measurement of International Prices , 1994 .

[52]  John G. Fernald,et al.  Constant Returns and Small Markups in U.S. Manufacturing , 1994 .

[53]  Allen N. Berger,et al.  Risk-based capital and off-balance sheet activities , 1988 .

[54]  R. Baldwin.  Hysteresis in import prices , 1988 .

[55]  S. Magee.  Currency Contracts, Pass-Through, and Devaluation , 1973 .

[56]  F. Black.  Capital Market Equilibrium with Restricted Borrowing , 1972 .

[57]  Robert S. Chirinko,et al.  Federal Reserve Bank of Minneapolis Research Department Staff Report 302 Is Lumpy Investment Relevant for the Business Cycle? , 2022 .

[58]  T. Kehoe,et al.  Federal Reserve Bank of Minneapolis Research Department Staff Report Tradability of Goods and Real Exchange Rate Fluctuations , 2022 .