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In this paper, I develop and estimate a tractable general equilibrium model of international trade that includes endogenous quality choice among heterogeneous firms. The framework predicts that high productivity firms choose to produce high quality varieties and self-select into the export market. I find support for the model's predictions in U.S. Census microdata on manufacturing establishments.
We study a model of industry dynamics in which idiosyncratic risk is uninsurable and establishments are subject to a nancing constraint. We ask: does the model, when parameterized to match salient characteristics of plant-level data (Colombia and South Korea), predict large aggregate TFP losses from misallocation of factors across productive units? Our answer is: no. We estimate financing frictions that are fairly large: one-half of the establishments in both countries are constrained and face an external finance premium of 5% on average.
Queen's University, Kingston, Ontario
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