NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Trade Policy Differences Induce Sorting? Theory and Evidence from Bangladeshi Apparel Exporters

Svetlana Demidova, Hiau Looi Kee, Kala Krishna

NBER Working Paper No. 12725*
Issued in December 2006
NBER Program(s):   ITI

This paper provides a new heterogeneous firm model for trade where firms differ in their productivity and experience different market demand shocks. The model incorporates variations in trade policy, trade preferences, and the rules of origin needed to obtain them, to reflect real world differences faced by Bangladeshi garment exporters in the US and EU. We estimate firms' productivity using an extension of the Olley Pakes procedure that accounts for the biases arising from both demand shocks and productivity being unobserved. Predictions of the model are then tested non-parametrically and are shown to be supported empirically.

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An online appendix is available for this publication.

This paper was revised on September 9, 2009

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