I also offer a potential explanation for the apparent lack of sensitivity of exports to exchange rate fluctuations.
The estimated elasticities of trade flows with respect to trade barriers are systematically distorted by the degree of firm heterogeneity and by market structure.(cont.) These distortions are consistent with the predictions of the model with heterogeneous firms, and reject those of the model with representative firms.
Chapter 2 demonstrates the importance of liquidity constraints in international trade.
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I prove that the extensive margin, the number of exporters, and intensive margin, the exports per firm, are affected by the elasticity of substitution in exact opposite directions.
In sectors with a low elasticity of substitution, the extensive margin is highly sensitive to trade barriers, compared to the intensive margin, and the reverse holds true in sectors with a high elasticity.
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Students choose to pursue a Master of Arts when they want to go beyond their undergraduate studies.
In this chapter, I introduce firm heterogeneity in a simple model of international trade.
By considering only the intensive margin of trade, Krugman (1980) predicts that a higher elasticity of substitution between goods magnifies the impact of trade barriers on trade flows.