luca david opromolla

When trade costs are of the iceberg type (Samuelson 1952), relative prices across markets are distorted, but relative prices within markets are not. When trade costs depart from the analytically convenient iceberg type, distortion will also occur within markets. In this paper we build a heterogeneous firm model of trade that allows for both iceberg and per-unit costs. An important theoretical finding is that these within-market distortions create an additional channel of gains from trade through within-industry reallocation. We fit the model to firm-level export data, by product and destination, using a novel minimum distance estimator and find that average per-unit costs, expressed as an ad-valorem tax equivalent, are 30-50%, depending on the elasticity of substitution. The pure iceberg model is therefore rejected. Finally, we calibrate the model and quantify the costs of protectionism. Simulations indicate that the welfare (aggregate TFP) costs are roughly 40% higher (twice as high) when trade costs are per-unit compared to when they are iceberg

@article{imo09,
  title={The Tip of the Iceberg: Modeling Trade Costs and Implications for Intra-Industry Reallocation},
  author={Irarrazabal, A. and Moxens, A. and L. D. Opromolla},
  type={manuscript},
  year={2009},
}

@article{imo09,
  title={Exports, Imports and Wages: Evidence from Matched Firm-Worker-Product Panels},
  author={Martins, P. and L. D. Opromolla},
  type={manuscript},
  year={2009},
}

In this paper we ask why the gravity model of international trade also works well for foreign direct investment (FDI) flows or multinational production (MP). We propose a model of trade and horizontal FDI, where the subsidiary is allowed to source inputs from the headquarters. Under certain parameter values, the model will generate gravity relationships for both exports and MP. Matching the model with data using a unique firm-level dataset of both exports and MP reveals the following results. First, intra-firm trade appears to play a crucial role in shaping the geography of MP. Our conclusions are robust to any geographical distribution of fixed costs. Second, counterfactual experiments show that impeding FDI leads to reduced domestic labor demand by the headquarters, suggesting that outwards FDI may have positive effects on home employment.

@article{imo09,
  title={The Margins of Multinational Production and the Role of Intra-firm Trade},
  author={Irarrazabal, A. and Moxens, A. and L. D. Opromolla},
  type={working paper},
  publisher={CEPR},
  number={DP7145}
  year={2009},
}

In this paper we propose a framework for studying export dynamics and market specific flows in a multicountry model of trade with heterogenous firms. Countries are asymmetric in terms of their size, the size distribution of potential entrants, properties of firms idiosyncratic shocks, and trade barriers. The model has predictions in terms of cross-sectional moments and exporters dynamics. We show that persistent productivity shocks are enough to account for, qualitatively, many features of the data. In particular, the model is consistent with observed patterns of entry and exit across markets, export sales distribution, and the life cycle of new exporters.

@article{imo09,
  title={The Cross Sectional Dynamics of Heterogeneous Trade Models},
  author={Irarrazabal, A. and L. D. Opromolla},
  type={manuscript},
  year={2009},
}

This paper introduces persistent productivity shocks in a continuous-time general equilibrium model of trade with heterogeneous firms similar to Melitz (2003). In our model, the presence of sunk costs and uncertainty has three main consequences: first, firms export decisions become history-dependent. Second, the model generates firm export dynamics and allows for substantial heterogeneity in export growth conditional on survival. Third, both the generated equilibrium firm size distribution and sales distribution of exporters into a foreign market is Pareto in the upper tail without needing ad hoc assumptions about the entrants’ size distribution. These implications find support in the empirical literature. Our model can be considered as an extension to an open economy setting of Luttmer (2007) with the additional complication that it is necessary to solve for two stationary productivity distributions: one for exporters and one for non-exporters. Finally, we perform a numerical exercise to show how per-period fixed cost and up-front entry costs are differently related to persistence in export status for exporters and non-exporters.

@article{imo09,
  title={A Theory of Entry and Exit in Export Markets},
  author={Irarrazabal, A. and L. D. Opromolla},
  type={manuscript},
  year={2009},
}

Expansion into foreign markets is a major decision for a firm and it involves choices about which countries to approach and which products to export. We use a new database that covers the universe of export transactions for firms located in Portugal for the period 1996-2005 in order to examine the joint decision of where and what to export. We find that multi-product and multi-destination firms are crucial in explaining the dynamics of export over time. The exporters’ portfolio is very diversified in terms of sectors and product tenure and it is frequently modified over time. We show that, while continuing firms exporting continuing products to continuing destinations are fundamental in explaining the year-to-year growth rate of aggregate exports, the contribution of gross entry and exit of both destinations and products is, in absolute value, as important as the contribution of gross entry and exit of firms. Moreover, growth dynamics of new exporters proceeds along lines that are different from those characterizing the representative incumbent firm. The destination extensive margin is almost as important as the destination intensive margin and almost one-third of the latter is due to product switching (the product extensive margin). Firms access new destinations mostly by exporting new products, i.e. products that were not previously sold anywhere else by the firm. Products already exported by the firm to other destinations are an important but not the primary way to enter new destinations.

@article{imo09,
  title={Product and Destination Mix in Export Markets},
  author={Amador, J. and L. D. Opromolla},
  type={working paper},
  publisher={Banco de Portugal},
  number={17/2008}
  year={2008},
}