Truncated Firm Productivity Distributions and Trade Margins

By Cletus C. Coughlin and Subhayu Bandyopadhyay, working paper 2017-018. A standard theoretical prediction is that average exports are independent of tariff rates when the underlying distribution of firm productivities is assumed to be the widely-used Pareto distribution. Assuming that the underlying distribution has no upper bound is undoubtedly inaccurate and produces theoretical results at odds with empirical results.

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