A1 - Matthieu Crozet
A1 - Pamina Koenig
A1 - Vincent Rebeyrol
TI - Exporting to Insecure Markets: a Firm-Level Analysis
IS - 2008-13
T3 - Working Papers
KW - Insecurity
KW - Institutions
KW - firm heterogeneity
KW - trade margins
N2 - This paper proposes an original approach to investigate the influence of insecurity and institutional quality on international trade. We emphasize that insecurity is hardly comparable with other trade barriers such as tariffs because it does not affect all firms similarly. We develop a monopolistic competition trade model with insecurity as a random additional sunk cost for exporting firms. A higher level of insecurity may dissuade large firms to export, while some smaller ones may be able to enter the export market. Hence, insecurity disrupts firms’ selection into export markets, and this has particular effects on trade margins. Two discriminating predictions are derived from the model and confronted to the data. Using individual French firms exports to 100 destination countries, we find clear evidence corroborating our theoretical predictions.
ER -