The Gravity of Experience
48 Pages Posted: 20 Mar 2014
Date Written: March 20, 2014
In this paper, we establish the importance of experience in international trade for reducing trade costs and facilitating bilateral trade. Within an augmented gravity framework, we find that an additional year of experience at the country-pair level reduces trade costs by 2.0% and increases bilateral exports by 8%. The effect of experience is stronger for country-pairs that are more distant, who do not share a common border, and who lack colonial and legal ties. Further, experience raises both the extensive and the intensive margins of trade. In a dynamic trade model with heterogeneous firms and where export-experience reduces trade costs, our empirical results imply that benefits of experience are shared industry-wide and that experience lowers the variable component of trade costs.
Keywords: Gravity Model, Trade costs, Experience, Extensive and Intensive Margin
JEL Classification: F10, F14
Suggested Citation: Suggested Citation