Do Non-Exporters Lose from Lower Trade Costs?
30 Pages Posted: 22 Jun 2020
Date Written: May 27, 2020
We study the reaction of non-exporters to openness. While static models suggest non-exporters lose from openness, dynamic ones where firms can innovate allow for gains from internalizing future exports. Developing a tractable model with productivity choices where both effects are present, we show analytically that the former effect dominates for small non-exporters, while the latter dominates for large ones. Calibrating to U.S. data, 59% of non-exporters gain with openness, and the average non-exporter growth rate increases by 0.02% per point drop in trade costs.
Keywords: Non-Exporters and Trade Costs, Innovation and Trade, Firm Dynamics
JEL Classification: F1, L11, O3
Suggested Citation: Suggested Citation