Abstract: Sunk entry costs have been identified as the main export barrier by standard dynamic models of trade. However, these large entry costs are inconsistent with the existence of many small new exporters with low survival rates in foreign markets. To reconcile these patterns, this paper develops a dynamic structural model of trade in which firms slowly accumulate consumers in foreign markets. Estimating the model using export data from individual firms and a Markov chain Monte Carlo estimator, the model correctly predicts lower survival rates for new exporters and estimates much lower entry costs of exporting - less than a third of those estimated in the absence of consumer accumulation. These results have important implications at the aggregate level. In contrast to the standard model without consumer accumulation, this model correctly replicates important facts regarding the aggregate response of international trade to simulated shocks. Moreover, out-of-sample predictions demonstrate that the model better predicts actual trade responses to an observed shock than the standard model..
Estimating firm-level product quality with trade data, with Gabriel Smagghue, February 2017
Winner of the FREIT EIIT 2013 best graduate student paper. Previously circulated under the title "A new method for quality estimation using trade data: an application to French firms".
Abstract: We propose a new instrumental variable strategy to estimate product quality at the firm-level, using trade data. Interacting firm importing shares by country with real exchange rates (RER), we obtain a cost shifter that varies across firms and is arguably orthogonal to product quality. We use this import weighted RER as an instrument for export prices and we identify firm-level quality from residual export variations, after controlling for prices. Our quality estimates correlate sensibly to firm characteristics (e.g. wages) and to alternative measures of quality available for some rare sectors. By contrast, our estimates are not always consistent with prices, a popular proxy for quality. We show for instance that firms add products to their export portfolio when their quality increases, as expected, while simultaneously their prices decrease. This suggests that our empirical strategy, by delivering quality estimates which, unlike prices, are not polluted with productivity variations, should contribute to future research on the link between firm-level product quality and globalization.
Advertising expenditures across heterogenous firms, January 2013
Draft available upon request.