Size rationalization and trade exposure in developing countries

Given the lack of direct evidence regarding industrial adjustment in response to trade liberalization, this paper tackles some very basic questions. Specifically, in LDCs, how is trade orientation correlated with the size distribution of plants and with plant-level labor productivity? It begins with a simple model that summarizes some effects of trade exposure on producer size and productive efficiency that have been stressed in the recent analytical and simulation literature. It then examines annual plant-level data from Chile and Colombia to determine whether these effects can be confirmed. The empirical results indicate that, over the long run, higher trade exposure is correlated with smaller plant sizes, controlling for industry and country effects. However, the mix of high versus low productivity plants is not strongly associated with trade exposure. Both of these findings cast doubt on the mechanisms linking trade, plant size, and productivity in a number of recent analytical and simulation studies.Economic Theory&Research,Environmental Economics&Policies,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade Policy,Science Education

An empirical model of sunk costs and the decision to export

Exports respond unpredictably to a change in real exchange rates, suggests evidence from the 1980s. Recent theoretical work explains this as a consequence of the sunk costs associated with breaking into foreign markets. Sunk costs include the cost of packaging, upgrading product quality, establishing marketing channels, and accumulating information on demand sources. The authors use micro panel data to estimate a dynamic discrete-choice model of participation in export markets, a model derived from the Krugman-Baldwin sunk-cost hysteresis framework. Applying the model to data on manufacturing plants in Colombia (1981-89), they test for the presence of sunk entry costs and quantify the importance of those costs in explaining export patterns. The econometric results reject the hypothesis that sunk costs are zero. The results, which control for both observed and unobserved sources of plant heterogeneity, indicate that prior export market experience has a substantial effect on the probability of exporting, but its effect depreciates fairly quickly. The reentry costs of plants that have been out of the export market for a year are substantially lower than the costs of a first-time exporter. After a year out of the export market, however, the reentry costs are not significantly different from the entry costs. Plant characteristics are also associated with export behavior: large old plants owned by corporations are more likely to export than other plants. Variations in plant-level cost and demand conditions have much less effect on the profitability of exporting than variations in macroeconomic conditions and sunk costs do. It appears especially difficult to break into foreign markets during periods of world recession.Economic Theory&Research,Markets and Market Access,Environmental Economics&Policies,Decentralization,Water Conservation,Environmental Economics&Policies,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Markets and Market Access,Access to Markets

On the size of approximately convex sets in normed spaces

Let X be a normed space. A subset A of X is approximately convex if $d(ta+(1-t)b,A) \le 1$ for all $a,b \in A$ and $t \in [0,1]$ where $d(x,A)$ is the distance of $x$ to $A$. Let \Co(A) be the convex hull and \diam(A) the diameter of $A$. We prove that every $n$-dimensional normed space contains approximately convex sets $A$ with \mathcal{H}(A,\Co(A))\ge \log_2n-1 and \diam(A) \le C\sqrt n(\ln n)^2, where $\mathcal{H}$ denotes the Hausdorff distance. These estimates are reasonably sharp. For every $D>0$, we construct worst possible approximately convex sets in $C[0,1]$ such that \mathcal{H}(A,\Co(A))=\diam(A)=D. Several results pertaining to the Hyers-Ulam stability theorem are also proved.Comment: 32 pages. See also http://www.math.sc.edu/~howard

Extremal Approximately Convex Functions and Estimating the Size of Convex Hulls

A real valued function $f$ defined on a convex $K$ is anemconvex function iff it satisfies $$f((x+y)/2) \le (f(x)+f(y))/2 + 1.$$ A thorough study of approximately convex functions is made. The principal results are a sharp universal upper bound for lower semi-continuous approximately convex functions that vanish on the vertices of a simplex and an explicit description of the unique largest bounded approximately convex function~$E$ vanishing on the vertices of a simplex. A set $A$ in a normed space is an approximately convex set iff for all $a,b\in A$ the distance of the midpoint $(a+b)/2$ to $A$ is $\le 1$. The bounds on approximately convex functions are used to show that in $\R^n$ with the Euclidean norm, for any approximately convex set $A$, any point $z$ of the convex hull of $A$ is at a distance of at most $[\log_2(n-1)]+1+(n-1)/2^{[\log_2(n-1)]}$ from $A$. Examples are given to show this is the sharp bound. Bounds for general norms on $R^n$ are also given.Comment: 39 pages. See also http://www.math.sc.edu/~howard

Cosmological Solutions of Low-Energy Heterotic M-Theory

We derive a set of exact cosmological solutions to the D=4, N=1 supergravity description of heterotic M-theory. Having identified a new and exact SU(3) Toda model solution, we then apply symmetry transformations to both this solution and to a previously known SU(2) Toda model, in order to derive two further sets of new cosmological solutions. In the symmetry-transformed SU(3) Toda case we find an unusual "bouncing" motion for the M5 brane, such that this brane can be made to reverse direction part way through its evolution. This bounce occurs purely through the interaction of non-standard kinetic terms, as there are no explicit potentials in the action. We also present a perturbation calculation which demonstrates that, in a simple static limit, heterotic M-theory possesses a scale-invariant isocurvature mode. This mode persists in certain asymptotic limits of all the solutions we have derived, including the bouncing solution.Comment: 24 pages, 2 tables, 9 eps figures; minor corrections to conten

Market entry costs, producer heterogeneity and export dynamics

As the exchange rate, foreign demand, production costs and export promotion policies evolve, manufacturing firms are continually faced with two issues: whether to be an exporter, and if so, how much to export. we develop a dynamic structural model of export supply that characterizes these two decisions and estimate the model using plant-level panel data on Colombian chemical producers. The model embodies uncertainty, plant-level heterogeneity in export profits, and sunk entry costs for plants breaking into foreign markets. Our estimates, and the simulation exercises that they support, yield several implications. First, entry costs are typically large, but vary greatly across proucers. second, there is substantial cross-plant heterogeneity in gross expected export profit streams. Third, these large entry costs make expectations about future exporting conditions important for many producers, so changes in the exchange rate regime that are credible induce much more entry than those that are not. Fourth, however, most of the entry and exit takes place among marginal exporters who contribute little to aggregate export revenues. Finally, subsidies on export earnings have much large impact on export revenues(per dollar spent)than subsidies that reduce the entry costs faced by new exporters.

Market Entry Costs, Producer Heterogeneity, and Export Dynamics

As the exchange rate, foreign demand, production costs and export promotion policies evolve, manufacturing firms are continually faced with two issues: Whether to be an exporter, and if so, how much to export. We develop a dynamic structural model of export supply that characterizes these two decisions and estimate the model using plant-level panel data on Colombian chemical producers. The model embodies uncertainty, plant-level heterogeneity in export profits, and sunk entry costs for plants breaking into foreign markets. Our estimates, and the simulation exercises that they support, yield several implications. First, entry costs are typically large, but vary greatly across producers. Second, there is substantial cross-plant heterogeneity in gross expected export profit streams. Third, these large entry costs make expectations about future exporting conditions important for many producers, so changes in the exchange rate regime that are credible induce much more entry than those that are not. Fourth, however, most of the entry and exit takes place among marginal exporters who contribute little to aggregate export revenues. Finally, subsidies on export earnings have a much larger impact on export revenues (per dollar spent) than subsidies that reduce the entry costs faced by new exporters.