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The Mutable Geography of Firms' International Trade: Evidence and Macroeconomic Implications

Author

Listed:
  • Lu Han
Abstract
Exporters add and drop destination markets in response to a variety of global, national and industry-specific shocks. This paper develops empirical measures of these market changes and documents a set of key stylized facts using the customs databases of China (2000-2006) and the United Kingdom (2010-2016). First, I find within-firm changes in destination markets involve large trade values and 30-40% of all market changes involve simultaneously adding and dropping markets. Second, around 20% of within-firm market changes are driven by fluctuations in bilateral exchange rates and local CPI measures. Taken together, these facts suggest that firms face large destination-specific fluctuations in the demand for their products. Third, while adding and dropping markets, firms simultaneously adjust prices and quantities across all other destinations they serve. I build a multi-country general equilibrium model to investigate the channels that can generate the observed data patterns and study the aggregate implications of mutable markets (within-firm market changes) on the distribution of markups, trade volumes, and welfare. Applying the multi-country model to analysis of a bilateral trade war, I find that aggregate productivity for countries directly involved in the trade war drops more (1-2%) and that of countries not involved rises more (8-10%) when firms endogenously vary their markets in response to the new conditions of competition in local markets induced by the bilateral trade war.

Suggested Citation

  • Lu Han, 2019. "The Mutable Geography of Firms' International Trade: Evidence and Macroeconomic Implications," Working Papers 201909, University of Liverpool, Department of Economics.
    • Handle: RePEc:liv:livedp:201909
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    File URL: https://www.liverpool.ac.uk/media/livacuk/schoolofmanagement/research/economics/Innovation,and,Inequality,from,Stagnation,to,Growth.pdf
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