Threshold of entry into j depends on prices in j

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Unformatted text preview: 1 j - ( -1 - 1 ) 1 - sk kj fkj j is an aggregate measure of j's remoteness from the rest of the world (due to both fixed and variable costs). Thomas Chaney (University of Chicago) ECON 357 9 / 17 Equilibrium exports and selection Firm level exports (r ), thresholds of export ( ), and aggregate profits ( ), -1 - 1 L j 3 Lj ij -1 , if ij rij ( ) = 0 , otherwise 1 1 ij L ij = 4 fij-1 Lj j = 5 L 1 2 Note: elasticity of rij w.r.t. ij is - ( - 1) as in Krugman. Note: aggregate income elasticity of firm level exports < 1. Thomas Chaney (University of Chicago) ECON 357 10 / 17 Gravity equation Aggregate exports from i to j, Chaney versus Krugman, - - -1 ( ) LL Chaney X = iL j ij fij -1 ij j -(-1) Krugman ~LL X = iL j ij ij ~j 1 2 3 Higher elasticity of trade w.r.t. variable trade barriers, > - 1. 4 Elasticity does not depend on the elasticity of substitution . Elasticity w.r.t. fixed costs, -1 - 1 , is negatively related to the elasticity of substitution . Both elasticities are higher in sectors where firms' productivity is less dispersed ( larg...
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This note was uploaded on 04/26/2013 for the course ECON 521 taught by Professor Danieldias during the Spring '13 term at University of Illinois, Urbana Champaign.

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