Do Trade Policy Differences Induce Sorting? Theory and Evidence from Bangladeshi Apparel Exporters

53 Pages Posted: 6 Dec 2006 Last revised: 10 Apr 2021

See all articles by Svetlana A. Demidova

Svetlana A. Demidova

Department of Economics, McMaster University

Hiau Looi Kee

World Bank - Development Research Group (DECRG)

Kala Krishna

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 2006

Abstract

This paper provides a new heterogeneous firm model for trade where firms differ in their productivity and experience different market demand shocks. The model incorporates variations in trade policy, trade preferences, and the rules of origin needed to obtain them, to reflect real world differences faced by Bangladeshi garment exporters in the US and EU. We estimate firms' productivity using an extension of the Olley Pakes procedure that accounts for the biases arising from both demand shocks and productivity being unobserved. Predictions of the model are then tested non-parametrically and are shown to be supported empirically.

Suggested Citation

Demidova, Svetlana A. and Kee, Hiau Looi and Krishna, Kala, Do Trade Policy Differences Induce Sorting? Theory and Evidence from Bangladeshi Apparel Exporters (December 2006). NBER Working Paper No. w12725, Available at SSRN: https://ssrn.com/abstract=948187

Svetlana A. Demidova

Department of Economics, McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Hiau Looi Kee

World Bank - Development Research Group (DECRG) ( email )

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Kala Krishna (Contact Author)

Pennsylvania State University - Department of Economics ( email )

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United States
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814-863-4775 (Fax)

National Bureau of Economic Research (NBER)

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