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

60 Pages Posted: 25 Aug 2012

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: July 1, 2012

Abstract

We study empirically and theoretically the growth of U.S. manufacturing exports from 1987 to 2007. We identify the change in iceberg costs with plant-level data on the intensity of exporting by exporters. Given this change in iceberg costs, we find that a GE model with heterogeneous establishments and a sunk cost of starting to export is consistent with both aggregate U.S. export growth and the changes in the number and size of U.S. exporters. The model also captures the non-linear dynamics of U.S. export growth. A model without a sunk export cost generates substantially less trade growth and misses out on the timing of export growth. 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. Allowing for faster productivity growth in manufacturing, changes in capital intensity, and some changes in the underlying shock process makes the theory consistent with the changes in the employment size distribution. We also find that the contribution of trade to the contraction in U.S. manufacturing employment is small.

Keywords: Export Growth, Trade, Sunk Costs

JEL Classification: E31, F12

Suggested Citation

Alessandria, George A. and Choi, Horag, Do Falling Iceberg Costs Explain Recent U.S. Export Growth? (July 1, 2012). FRB of Philadelphia Working Paper No. 12-20. Available at SSRN: https://ssrn.com/abstract=2134926 or http://dx.doi.org/10.2139/ssrn.2134926

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

Register to save articles to
your library

Register

Paper statistics

Downloads
30
Abstract Views
339
PlumX Metrics