Market Access Costs and the New Consumers Margin in International Trade

Abstract

I develop a new theory of marketing and introduce it into a model of trade with product differentiation and firm productivity heterogeneity. In this model, a firm enters a market if it makes profits by reaching a single consumer there and pays an increasing marginal cost to access additional consumers. This access cost introduces an extensive margin of new consumers in firms’ sales. I calibrate the key parameters of the model to match data on French firms from Eaton, Kortum and Kramarz, in particular the higher sales in France of firms that choose to export to more destinations. The model predicts that most firms do not export, and that a large proportion of firms that export in particular markets do so in small amounts. These predictions are in line with the French data, but together create a puzzle for models with a fixed cost of exporting, such as those of Melitz and Chaney. Looking at the comparative statics of trade liberalization, I find that the model predicts large increases in trade in goods with positive but little previous trade, in line with Kehoe and Ruhl. ∗I am grateful to my advisors Timothy Kehoe and Samuel Kortum for their continued guidance and their support. I am also grateful to Cristina Arellano and Jonathan Eaton for continuous encouragement and various discussions on the topic. I am indebted to Jonathan Eaton, Samuel Kortum and Francis Kramarz for providing me with statistics from their data. For their suggestions and comments, I also would to like to thank Ariel Burstein, V.V. Chari, John Dalton, Thomas Holmes, Christos Ioannou, Patrick Kehoe, Erzo G.J. Luttmer, Ellen McGrattan, Fabrizio Perri, Edward C. Prescott, James Schmitz, Ina Simonovska, the members of the Trade and Development, and Trade and IO, workshops at the University of Minnesota as well as seminar participants at the 2006 North American Econometric Society Summer Meetings, 5th Conference on Economic Theory and Econometrics, Federal Reserve Bank of Minneapolis, and McGill University. Financial support from the Heller Dissertation Fellowship is gratefully acknowledged. All remaining errors are mine. †Contact: Department of Economics, University of Minnesota, 1035 Heller Hall, 271 19th Ave. S., Minneapolis, MN, 55455. Email: arkolaki@econ.umn.edu.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 31 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.