Estimating Export-productivity Cutoff Contours with Profit Data: A Novel Threshold Estimation Approach

TL;DR

This paper introduces a new method to estimate firm-specific export-entry thresholds considering variable fixed costs, revealing significant heterogeneity and complex threshold contours in Chinese export data.

Contribution

It extends traditional models by allowing fixed costs to vary across firms and estimates set-valued thresholds using observable data.

Findings

Substantial heterogeneity in export-entry thresholds.

Threshold contours differ significantly from single-point assumptions.

Provides new insights into firm behavior in international trade.

Abstract

This paper develops a novel method to estimate firm-specific market-entry thresholds in international economics, allowing fixed costs to vary across firms alongside productivity. Our framework models market entry as an interaction between productivity and observable fixed-cost measures, extending traditional single-threshold models to ones with set-valued thresholds. Applying this approach to Chinese firm data, we estimate export-market entry thresholds as functions of domestic sales and surrogate variables for fixed costs. The results reveal substantial heterogeneity and threshold contours, challenging conventional single-threshold-point assumptions. These findings offer new insights into firm behavior and provide a foundation for further theoretical and empirical advancements in trade research.