Events

Prof. Eduardo Morales
Professor
Department of Economics and SPIA
Princeton University

We extend a canonical partial equilibrium model of firm export dynamics to allow a firm’s export costs in a destination and period to depend on the other countries the firm concurrently exports to. When choosing its set of export destinations, firms are forward-looking, have rational expectations, and internalize the impact exporting to a country has on export costs in every other destination. Our model exhibits cross-country complementarities in firm export choices, and we introduce a new algorithm to deal with the large dimensionality of the state space and choice set inherent to the firm’s optimization problem. We estimate our model using longitudinal customs data for Costa Rica. Our estimates reveal firms enjoy reductions in export costs when concurrently exporting to destinations that are geographically or linguistically close to each other, or that share deep free trade agreements. According to our estimated model, exports, specially to some destinations, would be substantially lower in the absence of cost-saving advantages of exporting to multiple destinations. Our model also predicts the complementarities among members created by deep free trade agreements impact positively trade flows from third countries, counteracting the trade diversion effect of free trade agreements predicted by standard general equilibrium trade models. 

This is a joint seminar organized by HKU, CUHK, City U, HKUST and Lingnan U.

Please contact Xiameng PAN at xmpan@connect.hku.hk for registration.