Do Trade Policy Differences Induce Sorting? Theory and Evidence from Bangladeshi Apparel Exporters

Svetlana Demidova; Hiau Looi Kee; Kala Krishna

doi:10.3386/w12725

Do Trade Policy Differences Induce Sorting? Theory and Evidence from Bangladeshi Apparel Exporters

Svetlana Demidova, Hiau Looi Kee & Kala Krishna

Working Paper 12725

DOI 10.3386/w12725

Issue Date December 2006

Revision Date September 2009

This paper provides a new heterogeneous firm model for trade where firms differ in their productivity and experience different market demand shocks. The model incorporates variations in trade policy, trade preferences, and the rules of origin needed to obtain them, to reflect real world differences faced by Bangladeshi garment exporters in the US and EU. We estimate firms' productivity using an extension of the Olley Pakes procedure that accounts for the biases arising from both demand shocks and productivity being unobserved. Predictions of the model are then tested non-parametrically and are shown to be supported empirically.

We are grateful to Susumu Imai, Hajime Katayama, Mushfiq Mobarak, Ariel Pakes, Jim Tybout and participants at seminars at the IMF Institute, the Philladelphia Fed, Cornell University, the University of Texas, Austin, the 2007 EIIE conference in Slovenia, and at the NBER December 2005 ITI meetings for comments on earlier drafts. We thank the World Bank for providing research funding. Krishna thanks Princeton University for support as an International Economics Section Research Fellow for 2006-2007. The views expressed here are those of the authors and do not necessarily re.ect those of the institutions to which they are affiliated.
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- data appendix
- January 19, 2007
- September 23, 2008

Do Trade Policy Differences Induce Sorting? Theory and Evidence from Bangladeshi Apparel Exporters

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