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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A data appendix is available at http://www.nber.org/data-appendix/w12725

This paper was revised on September 9, 2009

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Document Object Identifier (DOI): 10.3386/w12725

Published: Demidova, Svetlana & Kee, Hiau Looi & Krishna, Kala, 2012. "Do trade policy differences induce sorting? Theory and evidence from Bangladeshi apparel exporters," Journal of International Economics, Elsevier, vol. 87(2), pages 247-261. citation courtesy of

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