Capacity Constrained Exporters: Micro Evidence and Macro Implications

JaeBin Ahn and Alexander McQuoid

No 1301, Working Papers from Florida International University, Department of Economics

Abstract: This study challenges a central assumption of standard trade models: constant marginal cost technology. We present evidence consistent with the view that increasing marginal cost is present in the data, and further identify financial and physical capacity constraints as the main sources of increasing marginal cost. To understand and quantify the importance of increasing marginal cost faced by financially and physically constrained exporters, we develop a novel structural estimation framework that incorporates these micro frictions. Our structural estimates suggest that the presence of such capacity constrained firms can (1) reduce aggregate output responses to external demand shocks by 30% and (2) result in welfare loss by around 23%.

Pages: 46 pages
Date: 2013-01
New Economics Papers: this item is included in nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:fiu:wpaper:1301

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