Do Falling Iceberg Costs Explain Recent U.S. Export Growth?

63 Pages Posted: 11 Apr 2010

See all articles by George Alessandria

George Alessandria

Federal Reserve Bank of Philadelphia

Horag Choi

Monash University

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2010

Abstract

The authors study the rise in U.S. manufacturing exports from 1987 to 2002 through the lens of a monopolistically competitive model with heterogeneous producers and sunk costs of exporting. Using the model, they infer that iceberg costs fell nearly 27 percent in this period. Given this change in iceberg costs, the authors use the model to calculate the predicted increase in trade. Contrary to the findings in Yi (2003), they find that the exports should have grown an additional 70 percent (78.7 vs. 46.4). The model overpredicts export growth partly because it misses the shift in manufacturing to relatively small establishments that did not invest in becoming exporters. Contrary to the theory, employment was largely reallocated from very large establishments, those with more than 2,500 employees, toward very small manufacturing establishments, those with fewer than 100 employees. The authors also find that very little of the contraction in U.S. manufacturing employment can be attributed to trade.

Suggested Citation

Alessandria, George A. and Choi, Horag, Do Falling Iceberg Costs Explain Recent U.S. Export Growth? (March 1, 2010). FRB of Philadelphia Working Paper No. 10-10. Available at SSRN: https://ssrn.com/abstract=1587033 or http://dx.doi.org/10.2139/ssrn.1587033

George A. Alessandria (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
(215) 574-6402 (Phone)
(215) 574-4364 (Fax)

Horag Choi

Monash University ( email )

Private Bag 92019
Auckland
New Zealand

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