Entry, Trade, and Exporting Over the Cycle

53 Pages Posted: 3 Sep 2019 Last revised: 10 Mar 2021

See all articles by George A. Alessandria

George A. Alessandria

University of Rochester - Department of Economics

Horag Choi

Monash University, Economics Department

Date Written: August 2019

Abstract

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.

Suggested Citation

Alessandria, George A. and Choi, Horag, Entry, Trade, and Exporting Over the Cycle (August 2019). NBER Working Paper No. w26212, Available at SSRN: https://ssrn.com/abstract=3446522

George A. Alessandria (Contact Author)

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627
United States

Horag Choi

Monash University, Economics Department ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia
+61-3-9903-2848 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
2
Abstract Views
106
PlumX Metrics