Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/115546
Authors: 
Blyde, Juan
Pineda, José
Year of Publication: 
2009
Series/Report no.: 
IDB Working Paper Series IDB-WP-150
Abstract: 
We investigate whether greater microeconomic flexibility facilitates the process of creative destruction in the context of new trade models with heterogeneous firms (Bernard et al., 2003 and Melitz, 2003). In these models, freer trade increases aggregate productivity because high-efficiency firms expand through exporting and low-efficiency firms exit the market. However, factor reallocation could be negatively affected by the presence of microeconomic frictions. We use these insights of the theory to analyze whether a reduction in trade costs increases the probability of becoming an exporter relatively more in industries with greater microeconomic flexibility and whether plant exit driven by trade costs declines is more likely in industries with lower frictions. Using plant level data from Venezuela, we report results supporting these predictions.
Subjects: 
Trade costs
microeconomic frictions
resource reallocation
JEL: 
F13
F14
L1
O12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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