Supersedes Working Paper 10-10 - Do Falling Iceberg Costs Explain Recent U.S. Export Growth?
They identify the change in iceberg costs with plant-level data on the intensity of exporting by exporters. Given this change in iceberg costs, they find that a GE model with heterogeneous establishments and a sunk cost of starting to export is consistent with both aggregate U.S. export growth and the changes in the number and size of U.S. exporters. The model also captures the non-linear dynamics of U.S. export growth. A model without a sunk export cost generates substantially less trade growth and misses out on the timing of export growth. Contrary to the theory, employment was largely reallocated from very large establishments, those with more than 2,500 employees, toward very small manufacturing establishments, those with fewer than 100 employees. Allowing for faster productivity growth in manufacturing, changes in capital intensity, and some changes in the underlying shock process makes the theory consistent with the changes in the employment size distribution. The authors also find that the contribution of trade to the contraction in U.S. manufacturing employment is small.