Exit with vertical product differentiation
Abstract This paper presents a duopoly model of exit from a declining industry with vertical product differentiation. It extends previous IO models on exit that have so far ignored demand effects. The model shows how the interplay between demand and technological factors determine the order of exit. Therefore, demand factors are relevant and should be taken into account. Thus, the firm with a longer tenure as a profitable monopolist does not necessarily outlast its rival. In addition, this paper argues that the low-quality firm may find it optimal to stay in the market despite making temporary losses to outlast its rival.
EMU and Trade : A PPML re-assessment with intra-national trade flows
Since Rose's (2000) path-breaking study, a lot of studies have been carried out on the effect of currency unions on trade. Both Rose's striking finding that sharing a currency union more than triples trade between countries and the creation of the euro have propelled an intense debate on this issue and, in particular, about the effect of the Economic and Monetary Union (EMU) on trade. More than 50 papers have examined the effect of EMU on bilateral trade flows given that it is, by far, the most important monetary union. However, so far the results vary greatly across studies and even the most recent articles provide mixed results. Whereas Glick and Rose (2016) and Larch, Wanner, and Yotov (…
New Firm Survival in Developing Countries: Evidence From Kosovo
This paper examines both newborn firm survival and firm turnover in Kosovo using the population of new firms and registry information on active firms from 2008 to 2012. Survival analysis is employed to analyze the impact of firm- and industry-level characteristics on survival. We find that the hazard rate has an inverted U-shape relationship with both firm age and firm size. The risk of failure increases over the first two years and later decreases. In addition, firms with one employee and more than 10 employees enjoy better survival prospects than medium-sized companies. Interestingly, very large firms do not face fewer risks than very small companies. When compared to other developing cou…
Previous experience, experimentation and export survival : Evidence from firm-product-destination level data
This paper explores the role of a firm's product and/or market export experience and experimentation for survival of new product-destination export spells, using firm-level Spanish customs data over the period 1997-2015. Previous research has documented a positive impact of experience on export survival. This paper contributes to the extant literature by unravelling the distinct effect on export survival of ongoing accumulated experience (i.e., from the start of a product-destination export spell), previous product and/or destination-market experience and experimentation (repetition of product-destination relationships). We find that 60% of new product-country export spells end during their…
EMU and trade: A PPML re‐assessment with intra‐national trade flows
This paper examines the EMU effect on trade for the eleven early joiners and Greece relying for the first time on data that include both international and intra‐national trade flows, in line with all the microfoundations of the structural gravity model of trade. We find that the overall EMU impact on trade is positive between its members and, specially, for trade between members and non‐members. Interestingly, we further show that the effect of the EMU on bilateral trade remarkably differs across countries. For Ireland, Belgium–Luxembourg, Spain, Portugal and Austria, we find robust evidence that EMU has boosted trade both with other members and with third countries, while for Finland, Fran…
One swallow does not make a summer: episodes and persistence in high growth
This paper analyzes firms’ episodes (spells) of high growth (HG) using a sample of Spanish manufacturing firms observed over two decades. The use of duration models allows us to investigate the following: (i) the probability of experiencing HG episodes, (ii) persistence in HG, and (iii) the determinants of the transitions in and out of the HG state and whether their impact varies over the business cycle. We find that about half of the firms experience at least one HG episode, but they seldom experience more than one. Moreover, high-growth status is rarely repeated due to high first-year selection. Yet, in subsequent years beyond the first one, the hazard rate from HG status falls substantia…
Does the GATT/WTO promote trade? After all, Rose was right
This paper re-examines the effect of the GATT/WTO on trade using recent econometric developments that allow us estimating structural gravity equations with the Poisson pseudo-maximum likelihood (PPML) estimator on a large dataset that requires computing high-dimensional fixed effects. By doing so, we overcome computational limitations that are present in previous studies. In line with Rose’s (Am Econ Rev 94:98–114, 2004) seminal work, we find that, unlike regional trade agreements and currency unions, the GATT/WTO accession has not generated positive trade effects. This result is robust to the use of alternative measures of trade flows, across periods and country groups, to changes in the p…
Age and productivity as determinants of firm survival over the industry life cycle
AbstractThis paper contributes to fill the gap between the literature on the determinants of firm survival and the empirical works on the industry life cycle (ILC). Using a representative sample of Spanish firms with 10 or more employees over the period 1993–2009, the role played by firm age and productivity in firm survival is empirically analysed across three stages of the life cycle of forty-seven 3-digit manufacturing sectors. In the ‘early’ stage of the ILC, firm age is negatively correlated with hazard rates while firm productivity is not. Firm productivity is associated with lower hazard in the ‘mature’ stage of the ILC, when competition is primarily efficiency-driven, while firm age…
The impact of the euro on firm export behaviour: does firm size matter?
The goal of this paper is to assess the impact of the euro on the relationship between firm size and exports. We employ previous new-new trade theory models to derive some hypotheses that are tested using a representative sample of Spanish manufacturing firms. The results indicate that the introduction of the euro has remarkably weakened the role of firm size in the decision to export to the Eurozone. What is more, the change in the proportion of exports to the Eurozone is negatively related to firm size. Our results suggest that the euro has reduced the threshold size in order to export to Eurozone countries. Copyright 2011 Oxford University Press 2010 All rights reserved, Oxford Universit…
THE DURATION OF FIRM-DESTINATION EXPORT RELATIONSHIPS: EVIDENCE FROM SPAIN, 1997-2006
I. INTRODUCTION The traditional trade literature that investigates aggregate trade flows emphasizes the sizeable increase in trade relationships since World War II and the remarkable persistence of trade flows. However, recent microlevel studies point out that under the stable aggregate trade flows there is a rich dynamics at firm- and/or product-level with a high turnover. In fact, international-market presence is often a transitory and an uncommon phenomenon. At any period, only a small percentage of home-based firms participate in trade and exporting firms are different from non-exporters (larger, more productive, etc.). Moreover, there is much persistence in exporting status; being an e…
Entry and exit in a vertically differentiated industry
This paper presents a duopoly model of firm rivalry in a vertically differentiated industry when market dynamics is explicitly accounted for. It shows how the interplay between demand (degree of product differentiation, demand elasticity) and cost (fixed and quality costs) factors determine firms’ relative strength when quality is irreversible. The main strategic choices are product quality, price and the timing of entry and exit. Further, firms incur sunk quality costs at time of entry and operating fixed costs of maintaining quality. Although the low quality firm may outlast its rival in the declining phase, both firms wish to be the “quality leader”.