The impact of trade with pure exporters

Abstract

Firms can be split into non-exporters, ordinary exporters, and pure exporters where pure exporters have been somewhat overlooked. We study how the presence of pure exporters can be rationalized in a theoretical model and how they influence economic performance. In our model, on average pure exporters are less productive than ordinary exporters. As a consequence, the productivity premium of exporters in the presence of pure exporters is lower than the premium in the absence of pure exporters. Moreover, if there is a large portion of pure exporters, then international trade lowers the average productivity.To allow for the existence of pure exporters, we extend the basic Melitz (2003) model by introducing heterogeneity in productivity as well as in both entry cost and demand in foreign markets. What is

Who are pure exporters?

“…Our study is closest to Lu et al (2014), Defever and Riaño (2022), and Gao and Tvede (2022). Lu et al (2014) extend Melitz (2003)'s model to study the existence of pure exporters, show that productivity can explain the phenomenon, and then test the model prediction with Chinese data.…”

“…Their theoretical model shows that bimodality exists in the distribution of export intensity when the underlying distribution of demand shocks is lognormal, gamma or Frechet, with sufficiently large dispersion. Gao and Tvede (2022) extend the Melitz model by introducing demand‐adjusted foreign entry costs, showing that pure exporters are less productive than general exporters. Our empirical finding contradicts their work because we do not find that firm productivity can explain the choice of being a pure exporter.…”