The structure and evolution of entry costs in trade

Understanding the frictions that make it difficult for U.S. firms to conduct trade with consumers and firms in foreign countries is the theme of this dissertation. It is well known that U.S. firms interact with economic agents in other counties infrequently relative to their U.S. counterparts. This basic observation implies the existence of significant barriers between national markets. Discerning how these frictions shape the global flow of goods, business opportunities for U.S. firms, and the welfare of foreign and U.S. consumers is at the heart of international economics.;The first essay focuses on uncovering the structure of export entry barriers faced by U.S. firms. I look for evidence of complementaries in entry costs that would generate increasing returns in the number of foreign destinations served. Perfect complimentary, or a global sunk export entry cost, is one the firm must pay to access any foreign market. Imperfect complimentarities might be geographic so that entering Germany reduces the cost of entering France, or linguistic so exporting to Mexico lowers barriers to entry into Spain. I discover that export status is hardly affected by past experience exporting to other countries, even when those other countries are similar to a potential export destination. In contrast, past experience exporting to a particular country is very helpful to accessing that destination again. This implies sunk entry barriers are mostly country specific.;I also provide the first dollar value estimates of up-front costs that fully account for the choice to access different markets and allow for a global entry cost. I find that the global cost is ;The second essay explores the rise of worldwide trade since 1987. In particular, we look at the growth in the number of goods varieties traded internationally from the perspective of the U.S. manufacturing firms. Using data from the U.S. Census, we find that the percentage of plants that export rose from 21 percent in 1987 to 39 percent in 2006. In discussing the causes of similar documented trends in other countries, prior authors have suggested the natural explanation that the up-front costs of entering foreign markets has declined over time. We consider this hypothesis and find little evidence that these trends have been driven by substantial declines in entry costs. We instead make the case that increased participation was driven not by a decline in the cost of entering foreign markets but by an increase in the benefits of exporting. Specifically, the documented growth in foreign income over our time period is sufficient to account for the rise in U.S. export participation.;The final essay explicitly considers the process by which producers and consumers find one another. It embeds search and matching frictions in a general equilibrium international trade model with heterogeneous firms. The search friction at the heart of the model arises because it takes time and expense for U.S. importers to find suitable foreign varieties. Search implies that the price paid for an imported good lies between the domestic final sales price and the foreign affiliate's average cost of production. Largely due to profit maximizing conditions that survive the addition of search, many of the standard trade results remain intact. In particular, search frictions do not affect the quantity traded, the productivity threshold necessary to export or the domestic price. Nevertheless, the search friction enters the standard gravity equation, and the total value of imports falls as search frictions rise with the magnitude of the search friction having a first order effect on the value of imports. We argue ignoring these frictions will lead to biased estimates of the effect of variable and fixed trade costs and that quantifying the importance of search frictions requires using disaggregated data.