More recently, Das et al. 2007) estimate the structural sunk export costs and find them significant. The mechanism for interdependence across input sources is similar to Antr`as et al. 2017) (hereafter AFT), which considers the firm's acquisition decision in a static setting.
Data and Stylized Facts
Description of the Data Sources
About 60% of the companies in the customs data can be matched with the NBS company surveys. Nevertheless, the main results remain largely the same when I include all 96 import markets that appear in customs data.
Stylized Facts
Note that there is a large drop in the effect of prior import status when firm-specific fixed effects are included. In the theoretical framework developed in Section 1.3, I allow for firm country-specific components that may account for the pattern observed here.
Model
Setup
- Demand
- Technology and Market Structure
The market of the final good is monopolistically competitive and I assume that varieties of the final good are not traded. 17. Finally, good producers determine a set of countries for purchasing inputs and at the same time select a set of destinations for exporting products.
Firm Behavior Conditional on Sourcing Strategy
Conditional on the firm's import history, bit−1, firm-level static profit after importing from a set of bit sources per year. I do not include it since the focus of the model is on the firm's import history.
Optimal Sourcing Strategy
This simple addition of the sunk cost will actually complicate the firm's decision, since the firm now avoids paying sunk costs if it continues to import from last year's source countries. As discussed in Section 1.2, the presence of sunk costs allows us to explain persistent import behavior and exploits the differences in firm history to account for the heterogeneity in firm import strategies.
Estimation Approach
Revealed Preferences Assumption
A direct implication of the assumption is that any deviation from the observed path will decrease its expected profit. Due to a period's dependence on πdet, static profits for year+lwherel≥2 will be the same on both sides of the inequalities.
Deriving Moment Inequalities: Intuition
The next section provides examples of the moment functions and anomalies that will generate the profit differenceπidt. We can think of the moment functions gk(Zit) as assigning weights to different observations.
Estimation Procedure and Results
- Step 1: Profit Differences
- Step 2: Fixed and Sunk Costs
- Comparison with Alternative Model Assumptions
- Sample Selection and Potential Data Issues
This figure compares the 95% confidence set of the base model (discount factor δ=0.9) versus a model where the firms do not look ahead (discount factor δ=0). Not taking dynamic gains into account is therefore likely to create a downward bias in the sunk cost estimates.
Extensions
Productivity Gain of Importing
- Constructing input tariffs
- Results
I construct measures of firm-level input rates by computing average rates weighted by firm-level inputs. For these reasons, I replace Zipt/Zit, i.e. the share of the total input cost of the input for the year, with the company's average share over the entire sample period.
Export Decisions
44 It is also feasible to enable complementarity in the fixed costs of exports and imports. Similarly, a new exporter gets a reduction in the sunk cost of exporting if it imported from the same market in the previous year.
Conclusion
This figure illustrates the 95% confidence ranges of total costs for new importers (top panel) and new exporters (bottom panel). Finally, although the basic model focuses on the import side, Section 1.6.2 shows an extension that includes the firm's export decision.
Appendix .1 Data.1Data
Variable construction
The share of ATP imports is calculated based on total ATP imports and total imports. The first criterion compares the shares of ATP imports between countries, while the second criterion compares the relative share of ATP imports compared to other imports from the same country.
Descriptive Statistics
As before, I assume that there may be a multiplicative measurement error in the proportion of imported input to total inputXi jt, denoted byxi jt. We can also assume that there is a multiplicative measurement error in the share of domestic inputXiht.
Additional Tables
This table shows the estimation results for the country-level procurement potential equation under different specifications. Finally, columns 5 and 6 report the estimation results for the Poisson regression with Xi jt/Xihta as the dependent variable.
Introduction
The TPP was expected to have a significant impact on the Vietnamese economy and thus would cause strong reactions from Vietnamese firms. Determining the impact on aggregate productivity due to changes at the firm level, I find that although the net effect on all.
Background Information .1 The Trans-Pacific Partnership.1The Trans-Pacific Partnership
Potential Impacts on the Vietnamese Economy
The signing of the TPP was one of the most anticipated economic events in Vietnam in recent years. The TPP was also expected to serve as a soft balance against increasing Chinese dominance in the region.
Theoretical Motivation
The changes in firms' investments in productivity can potentially lead to the reallocation of resources to firms with the most productivity improvement. 16A notable exception is Bernard et al. 2007), in which the authors argue that trade openness leads to a redistribution of resources, both within and between industries.
Data and Variable Construction .1 Vietnam Enterprise Surveys.1Vietnam Enterprise Surveys
Tariff Data
I use MFN tariffs between Vietnam and the United States, Canada, Mexico, and Peru in 2016 to predict future tariffs without the TPP. Trade data between Vietnam and the US, Canada, Mexico and Peru were obtained from the UN COMTRADE database.
Measuring Expected Tariff Cuts
The solid line represents the current tariff schedule, and the dashed line represents the TPP schedule. This table presents the proportion of 6-digit HS codes in each industry that fall into one of five tiered categories: tariffs already equal to zero, tariffs eliminated immediately, within 5 years, within 10 years and after 10 years.
Measuring Productivity
The top panel shows tariff reductions in the first year under TPP (discount rate=0), the middle panel presents the discounted sum of tariff reductions within 15 years with a discount rate of 0.5, and the bottom panel shows the discounted sum of tariff reductions with discount rate of 0.9. The unobserved prices create an endogeneity problem as they are correlated with the choice of inputs.
Overview of Aggregate Productivity
Static Decomposition
Over the period aggregate productivity increased by 14%, almost all of it from unweighted productivity growth. Another notable feature of aggregate productivity over this period is that the original OP covariance term is largely driven by between-industry covariance (Table 2.4) as opposed to within-industry covariance, suggesting the importance of reallocation across industries in explaining aggregate. productivity movements.
Dynamic Decomposition with Exit and Entry
This table reports the breakdown of total productivity growth accounting for firm exit and entry using the method proposed in (Melitz and Polanec, 2015). This figure reports the dynamic decomposition of total productivity to account for exit and entry.
Firm-level Analysis: Empirical Strategy and Results .1 Empirical Strategy.1Empirical Strategy
Baseline results
The US withdrawal – which had a major negative impact on the outlook for the trade agreement – took place in January 2017, meaning that for the majority of the year, Vietnamese companies did not expect the TPP to enter into force. This evidence again confirms that the impact on firms' productivity is driven by their expectation of the trade agreement.
Potential Identification Threats .1 Parallel Trend Assumption.1Parallel Trend Assumption
- Endogeneous Exit and Entry
This suggests that the basic findings do not arise from firm exit and entry in response to anticipation of the TPP. Moreover, the percentage of companies that indicated that they were active in another sector after the TPP announcement is low.
Implications for Aggregate Productivity
The choice of weights depends on the implicit assumption of the effect of the TPP on market share redistribution. I use 2016 market share as weights under the assumption that market share is minimally affected by the TPP announcement, and thus changes in overall productivity come from changes within the firm.
Heterogeneous Effects and Mechanisms
Foreign versus Domestic Firms
The differences between domestic and foreign companies are not caused by state-owned enterprises (column 2). About 40% of non-TPP foreign companies have South Korean CEOs, 30% of foreign CEOs are Taiwanese, and 15% are Chinese.
Potential Growth
Specifically, let Xj,VN denote the trade value of goods in four-digit industries between Vietnam and TPP countries (excluding Vietnam) in the base year and XVN the total trade values between Vietnam and TPP countries. On the other hand, when ∆χmj <0, Vietnam imported relatively less goods from TPP countries compared to China in the base year.
Capacity Utilization
There is weak evidence that capacity utilization industries with high adjustment costs tend to be more responsive to anticipated changes in tariffs. Standard errors are clustered at the 4-digit ISIC level and adjusted for multiple imputations using the procedure in Appendix 2.9.2.
Conclusion
Appendix
- Details on Construction of Final Sample .1 Linking firms across years.1Linking firms across years
- Defining A Firm’s Main Industry
- Deflators
- Imputation
- Procedure
- Inference
- Estimating Productivity
- Endogenous Productivity Evolution
- First-Order Condition Approach
- Other Robustness Checks
- Expected tariff reduction measure
- Imputation
- Sample Selection
- Additional Tables and Figures .1 Worldwide Interest about the TPP.1Worldwide Interest about the TPP
- Trade and Tariffs
In the second stage, I use the same assumption for productivity development as in the main analysis. This table reports the results when zero tariffs are included in the construction of industry-level tariff reductions.
Introduction
Second, even after flexibly controlling for the presence of extended gravity in either the firm's export or promotion decisions, prior export or promotion experience continues to have a large influence on entry and promotion decisions in new export markets. None of these papers address the nature of firm-level investments that govern the firm's export path through heterogeneous destination markets and time.
Stylized Facts
Likewise, persistent export status at the company destination level is almost as persistent as at the company level. In the Appendix, we repeat these exercises after conditioning on a full vector of extended gravity variables.
Data
Export Promotion in Denmark
In contrast to the global promotion indicator, the coefficient of global export status is negative. On the one hand, we would expect the coefficient on the lagged export status variable to be positive to the extent that exporting improves firm performance (e.g. learning from exporting).
Data Sources
TC's services are intended for companies interested in engaging in new export activities, as well as companies interested in expanding existing export activities.
Empirical Model
- Fixed and Sunk Export Costs
- Fixed and Sunk Promotion Costs
- Profits
- Optimal Export and Promotion Decisions
We assume that the observed sunk cost shock,εxsf dt, has a mean-zero expectation conditional on the firm's export and promotion decisions and its information set. As with export sunk costs, we assume that the unobserved sunk cost shock,εpsf t, has mean-zero expectation conditional on the firm's export and promotion decisions and its information set.
Estimation
Revealed Preferences Assumption
In determining the optimal export and promotion path, the company balances current revenues and expected future profits with additional fixed and sunk costs. There are no restrictions on company information sets or their Bf t consideration sets.
Deriving Moment Inequalities: Some Examples
The top left panel presents a firm's observed export decisions in each country over three consecutive years. The bottom panel shows how we can create alternative paths over the course of the year by changing a company's export status in each country one by one.
Preliminary Results
Analogous arguments using the moments g3(Zf t), g4(Zf t), g5(Zf t) and g6(Zf t) allow us to recover bounds on the destination fixed and sunk export cost parameters minus global sunk export costs. Using the predicted export revenue and revenue gains from promotional services, we proceed to estimate the limits of the fixed and sunk costs of exporting and advertising.
Conclusion
Nevertheless, we cannot obtain an estimated set for the promotion parameters with the current sample. We find evidence for the effects of export promotion on exports along both the extensive and intensive margins.
Appendix
Export and credit constraints under imperfect information: theory and evidence from China. Review of Economics and Statistics. The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs. The American Economic Review, pages 545–564.
