Entry, Trade, and Exporting over the Cycle
We study how international trade and the exporting decisions of establishments affect establishment creation over the business cycle in a general equilibrium model. The model captures two key features of establishment and exporter dynamics: i) new establishments start small and grow over time and ii) exporters tend to be bigger and more productive than non-exporters and remain so for some time. When the cost of creating establishments fluctuates with aggregate productivity, we find the model can generate procyclical fluctuations in the stock of domestic establishments and importers similar to the data. Without international trade, entry is weakly countercyclical and too smooth. The model also generates fluctuations in the stock of importers, exporters, and domestic establishments of similar magnitude to those in the data. With an entry margin, we also find that output is hump-shaped following a productivity shock since investments in creating establishments and exporters generate an incentive to delay accumulating physical capital. This hump is stronger in an open economy model and strongly increases the value of creating new establishments in a boom.
This is a revised version of an earlier paper, "The Role Exporting and Trade for Entry over the Business Cycle." We have benefitted from conversations with Aubhik Khan and Satyajit Chatterjee and seminar participants at numerous conferences and universities. We thank Yoonsoon Lee and Ippei Fujiwara for helpful discussions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
GEORGE ALESSANDRIA & HORAG CHOI, 2019. "Entry, Trade, and Exporting over the Cycle," Journal of Money, Credit and Banking, vol 51(S1), pages 83-126. citation courtesy of