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Discussion or working paper
Paul S. Segerstrom ,

Learning How to Export

  • Abstract

    In this paper, we present a standard quality ladders endogenous growth model with one significant new assumption, that it takes time for firms to learn how to export. We show that this model without Melitz-type assumptions can account for all the evidence that the Melitz (2003) model was designed to explain plus much evidence that the Melitz model can not account for. In particular, consistent with the empirical evidence, we find that trade liberalization leads to a higher exit rate of firms, that exporters charge higher prices for their products as well as higher markups, and that many large firms do not export. We also find that trade liberalization promotes economic growth and that it has the opposite effect of retarding economic growth in a closely comparable growth model with Melitz-type assumptions.
  • Keywords

    Trade liberalization
    heterogeneous firms
    quality ladders
    endogenous growth
  • JEL classification

    F12, F13, F43, O31, O41
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