The dynamics of export market exit and firm closure have found limited attention in heterogeneous-firms trade models. Accordingly, several of the predictions on exit stemming from new-new trade theory are at odds with the stylized facts. Empirically, higher productivity firms survive longer, higher productivity exporters are more likely to continue to export, and market exit is typically preceded by periods of contracting market shares. We show that the simple inclusion of exogenous economy wide technological progress into the standard Melitz (2003) model generates a tractable dynamic framework that generates endogenous exit decisions in line with the stylized facts.
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25th Annual Congress of the European Economic Association, 2010