Julian Emami Namini

20
Emami Namini/López Julian Emami Namini Erasmus University Rotterdam IU Microeconomics Workshop, 09 January 2008 Ricardo A. López Indiana University, Bloomington International trade with horizontal and vertical product differentiation and heterogeneous firms 1 of 20

description

International trade with horizontal and vertical product differentiation and heterogeneous firms. Julian Emami Namini. Ricardo A. López. Erasmus University Rotterdam. Indiana University , Bloomington. IU Microeconomics Workshop, 09 January 2008. 1 of 20. 1 Introduction. - PowerPoint PPT Presentation

Transcript of Julian Emami Namini

Page 1: Julian Emami Namini

Emami Namini/López

Julian Emami NaminiErasmus University Rotterdam

IU Microeconomics Workshop, 09 January 2008

Ricardo A. LópezIndiana University,

Bloomington

International trade with

horizontal and vertical

product differentiation and

heterogeneous firms

1 of 20

Page 2: Julian Emami Namini

Emami Namini/López1

Introduction

1. Melitz (2003), Econometrica

•exporters more productive than non–

exporters

1.1 Theoretical literature on firms‘ export behavior

2. Eaton/Kortum/Kramarz (2005), Working Paper

• symmetric countries: exporters export to each country

hierarchy of markets

• implicitly:

asymmetric countries: only more productive firms export to

smaller market

— more productive firms export to more markets 2 of 20

Page 3: Julian Emami Namini

Emami Namini/López

4. Raff/Stähler/VanLong (2007), Working Paper

•R & D–decision by firms•productivity gains with

exposure to trade:

more R & D by exporting firms

•implicitly:

1Introduction

3. Bekkers (2007), Working Paper

•exporting firms: higher quality & higher price

•identical quality for each destination market

1.1 Theoretical literature on firms‘ export behavior – ctd.

• implicitly:

asymmetric countries: only higher quality firms export to

smaller market

asymmetric countries: only higher productivity firms export to

smaller market 3 of 20

Page 4: Julian Emami Namini

Emami Namini/López

This

paper1.on average:

productivity exporters > productivity non–exporters

1.2 Empirical literature on firms‘ export behavior

/ Lawless (2007), Working

Paper = Melitz

(2003)

1Introduction

0.1

.2.3

.4D

ensi

ty

-5 0 5 10 15logtfp

Non-Exporters Exporters

All Manufacturing

data source: Annual National Industrial Survey, National Institute of Statistics, Chile; 1990–1999 4 of 20

Page 5: Julian Emami Namini

Emami Namini/López

This

paper

1.2 Empirical literature on firms‘ export behavior – ctd.

/ Lawless (2007), Working

Paper – ctd. ≠ Melitz

(2003)

1Introduction

2.however:‘many’ non–exporters more productive

than exporters

0.1

.2.3

.4.5

Den

sity

0 5 10 15logtfp

Non-Exporters Exporters

Food

0.2

.4.6

.8D

ensi

ty

2 4 6 8 10logtfp

Non-Exporters Exporters

Textiles & Apparel

0.1

.2.3

.4.5

Den

sity

0 2 4 6 8 10logtfp

Non-Exporters Exporters

Wood Products

0.2

.4.6

.8D

ensi

ty

4 5 6 7 8logtfp

Non-Exporters Exporters

Other Manufacturing

5 of 20

data source: Annual National Industrial Survey, National Institute of Statistics, Chile; 1990–1999

Page 6: Julian Emami Namini

Emami Namini/López

data source: Annual National Industrial Survey, National Institute of Statistics, Chile; 1990–1999

This

paper

1.2 Empirical literature on firms‘ export behavior – ctd.

/ Lawless (2007), Working

Paper – ctd. ≠ Melitz

(2003)

1Introduction

3.# of export destinations:‘many’ firms export to limited number

of countries

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

number of destination markets

per c

ent

6 of 20

Page 7: Julian Emami Namini

Emami Namini/López

This

paper

1.2 Empirical literature on firms‘ export behavior – ctd.

/ Lawless (2007), Working

Paper – ctd.

≠ Melitz

(2003)

1Introduction

4.market 1 & market 2:

market share firm 1 > (<) market

share firm 25.less productive firms may export to smaller market

≠ Melitz

(2003)1.3 Theoretical contribution of this paper

Theoretical model to explain additional empirical evidence

on export behavior 7 of 20

Page 8: Julian Emami Namini

Emami Namini/López2 This model — preliminaries

2.1Households

CES utility function over N varieties of differentiated good

• only labor, numéraire good

8 of 20

,

11

dqU = 2 – for simplicity

firm index

2.2Countries

• countries differ in size

quality level of firm

• # goods? Partial equilibrium setup;analyzed sector: IRS: fixed costs

Page 9: Julian Emami Namini

Emami Namini/López

• high (low) tech high (low) fixed costs

• decision for each market: high / low tech

• Dixit–Stiglitz monopolistic competition between firms

2 This model — preliminaries2.3 Firms

• serving domestic/foreign market:fixed costs

9 of 20

• ex–ante uncertainty about MC:1. market entry – sunk costs – technology

unknown2. draw of technology parameters

Page 10: Julian Emami Namini

Emami Namini/López2 This model — preliminaries

2.3 Firms — ctd.

• per unit costs:

2 kackMC

random variables

choice variable — ‘some’ influence on technologies;high / low tech: aH < aL

choice variable: quality level

• variable profits .25.012

IPack k

• profit maximizing quality level:

kack

10 of 20

k MC for zero quality outputc MC for each unit quality

Page 11: Julian Emami Namini

Emami Namini/López

profit maximizing price level:

2 This model — preliminaries2.3 Firms — ctd.

• profit maximizing quality level:

kack

.4 kp

k

c

0 k

c

c

k

c

• identical p

• quality

• market share

k • p

• quality • market share

11 of 20

random variable

random variable

demand: k

D

ackIPq

25.0

Page 12: Julian Emami Namini

Emami Namini/López2 This model — preliminaries

2.3 Firms — ctd.

• aH / aL? High / low

tech?

LH aa .LH ff Assumption:

&

• firm chooses high tech if

LL

HH

fack

PIfack

PI

high tech profits > low tech profits

k

c

0 k

c

c

k

high tech

low techI

technology separation line – country specific

12 of 20

Page 13: Julian Emami Namini

Emami Namini/López2 This model — preliminaries

2.3 Firms — ctd. iso–revenue

curves? k

kack

PIR

H

H

aRPI

kc

21

LL

aRPI

kc

21

high tech:

low tech:

k

c

0 k

c

c

k

iso–revenue curve low techiso–revenue curve high tech

13 of 20

Page 14: Julian Emami Namini

Emami Namini/López2 This model — preliminaries

2.4 Course of events

14 of 20time

market entry — sunk costs fE

draw of random variables c & k

decision: production & technology

decision: market exit

productionrandom shock: market exit

Page 15: Julian Emami Namini

Emami Namini/López2 This model — preliminaries

2.4 Success of market entry

15 of 20

k

c

0 k

c

c

k

random variable

random variable

LL

fack

PI

• variable profits :

variable profits

• production after entry only if

variable profits

fixed costs

• zero profit condition

low tech

high tech

zero profit condition

exit

production

Page 16: Julian Emami Namini

Emami Namini/López

random variable

random variable

3 Open economy equilibrium3.1 Productivity and export behavior (1)

icc

c

0 ikkk

zero profit condition —

domestic market

technology separation line — both markets

Ø non–exporting firm

zero profit condition — foreign market

Result 1:

16 of 20

per unit costs Ø exporting firm

Ø exporting firm

<per unit costs Ø non – exporting firm

Page 17: Julian Emami Namini

Emami Namini/López

, but only firm 2 exports to small foreign market.

random variable

random variable

3 Open economy equilibrium3.1 Productivity and export behavior (2)

icc

c

0 ikkk

zero profit condition — large

foreign market

technology separation line — large foreign

market

firm

1

firm 2

zero profit condition — small foreign

market

2k1k

Result 1:

p

17 of 20

firm 1 has lower per unit costs ( higher productivity)

technology separation line — small foreign market

Page 18: Julian Emami Namini

Emami Namini/López

Result 2: if firms have identical market share in large country , they must have identical export behavior w.r.t. small foreign country!

if firms have identical market share in large foreign country

3 Open economy equilibrium3.2 Market share and export behavior (1)

icc

c

0 ikkk

zero profit condition — large

foreign market

technology separation line — large foreign market

firm 1 firm

2

zero profit condition — small foreign

market

2k1k

Result 2:

iso–revenue curve large

foreign market

iso–revenue curve small/large foreign

market

random variable

random variable

technology separation line — small foreign market

18 of 20

Page 19: Julian Emami Namini

Emami Namini/López

Result 3: large forgein country: market share firm 2 > market share firm 1small foreign country: market share firm 2 > market share firm 1

Result 3: large forgein country: market share firm 1 > market share firm 2

3 Open economy equilibrium3.2 Market share and export behavior (2)

icc

c

0 ikkk

firm 1

firm 2

Result 3:

icc

c

0 ikkk

firm 1

firm 2

large foreign country

small foreign country

technology separation line

technology separation line

iso–revenue curve high

tech

iso–revenue

curve low tech

random variable

random variable

random variable

random variable

19 of 20

Page 20: Julian Emami Namini

Emami Namini/López4 Conclusions

• actual export behavior of firms more complex than

predicted by Meltiz (2003) and others:

• theoretical setup:

• ranking of firms w.r.t. market shares differs

between countries

• of export destinations not related to productivity

• less productive firms may export to smaller market

2ikiii ackMC

• so far:theoretical results in line with new empirical evidence on

firms‘ export behavior 20 of 20