Eduardo Morales (Princeton University and NBER) will present:
“What do Exporters Know?”
at 12:15 pm on Tuesday, February 24, 2015 in Buchanan 051/TUCK
Lunch will be served at noon.
If you would like to sign up for a meeting and/or dinner:
https://docs.google.com/spreadsheets/u/0/d/1c2gb6wlG4qAxe-x7bSsr6EzxtH516Zj0q7n1PT03LPQ/edit#gid=0
Abstract
The decision of firms to participate in export markets drives much of the variation in the volume of trade. To understand this decision, and in particular to predict how firms will react to currency devaluations or changes in
trade policies, policymakers need a measure of the costs firms incur when entering foreign markets. Prior estimates of these costs are often large relative to most exporters' observed revenues. We show that these estimates depend heavily on how the researcher
specifies firms' expectations over the potential revenue they would earn upon entry. In response, we develop a novel moment inequality approach that allows us to (1) recover entry costs placing weaker assumptions on firms' expectations and (2) quantify the
effects of counterfactual policies. Our approach both introduces a new set of moment inequalities, odds-based inequalities, and generalizes the revealed-preference inequalities introduced in Pakes (2010). We use data from Chilean exporters to show that, relative
to methods that must specify firms' information sets, our approach generates estimates of entry costs that are approximately 70% smaller than previous measures. We predict gains in export volume from reductions in entry costs and currency devaluations that
are between 30% and 60% larger, respectively, than those predicted by existing approaches.