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Eduardo Morales, Princeton University

Monday, October 30, 2017 -
11:00am to 12:20pm
Rafik B. Hariri Building: Room 370, McDonough School of Business

Presenter: Eduardo Morales

Paper: What do Exporters Know?

Abstract: Much  of  the  variation  in  international  trade  volume  is  driven  by  firms’  extensive  margin decisions to participate in export markets.  To understand these decisions and predict the sensitivity of export flows to changes in trade costs, we estimate a standard model of firms’ export participation.  In choosing whether to export, firms weigh the fixed costs of exporting against the forecasted profits from serving a foreign market.  We show that the estimated parameters and counterfactual predictions from the model depend heavily on how the researcher specifies firms’ expectations over these profits.  In response, we adopt a moment inequality approach, placing weaker assumptions on firms’ expectations.  We use data from Chilean exporters to show that, relative to methods that require specifying firms’ information sets, our approach finds fixed export costs that are 80-90% smaller, leading to distinct predictions under counterfactual export promotion policies.  Finally, we test whether firms differ in the information they have about foreign markets.  We find that larger firms possess better knowledge of market conditions in foreign countries, even when those firms have not exported in the past.

The International Economics Seminar series is presented jointly with the Walsh School of Foreign Service and the Economics Department of Georgetown University.