Tradability and market penetration costs: Explaining foreign market servicing intensities |
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| Authors: | Katherine N Schmeiser Miguel F Ricaurte |
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| Institution: | 1. Department of Money and Banking, College of Commerce, National Chengchi University, Taiwan;2. Department of Finance, College of Business, Chung Yuan Christian University, Taiwan;3. Department of Finance, College of Commerce, National Chengchi University, Taiwan;4. Risk and Insurance Research Center, College of Commerce, National Chengchi University, Taiwan;1. School of Business and Management, Universidad de Concepción Campus Chillán, Avenida Vicente Méndez 595, Chillán, Chile;2. Research Nucleus on Environmental and Natural Resource Economics (NENRE EfD-Chile), Victoria 471, Concepción, Chile;3. Department of Economics, Universidad Católica del Norte, Avenida Angamos 0610, Antofagasta, Chile |
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| Abstract: | Industry level data shows striking differences among sectors in ratios of exports to FDI sales. We identify the elements behind the sectoral differences in the mode of foreign market servicing in the context of a general equilibrium model of monopolistic competition. Our calibration exercise shows that traditional margins such as transportation, fixed entry costs, utility weights, and dispersion of firm productivity are not enough to capture the observed sectoral differences, as is commonly assumed. We propose augmenting the model to allow for sectoral differences in intangible costs of operating in a foreign market in order to explain these observations. |
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