| Abstract: |
Exporters add and drop destination markets in response to a variety of global,
national and industry-specific shocks. This paper develops empirical measures
of these market changes and documents a set of key stylized facts using the
customs databases of China (2000-2006) and the United Kingdom (2010-2016).
First, I find within-firm changes in destination markets involve large trade
values and 30-40% of all market changes involve simultaneously adding and
dropping markets. Second, around 20% of within-firm market changes are driven
by fluctuations in bilateral exchange rates and local CPI measures. Taken
together, these facts suggest that firms face large destination-specific
fluctuations in the demand for their products. Third, while adding and
dropping markets, firms simultaneously adjust prices and quantities across all
other destinations they serve. I build a multi-country general equilibrium
model to investigate the channels that can generate the observed data patterns
and study the aggregate implications of mutable markets (within-firm market
changes) on the distribution of markups, trade volumes, and welfare. Applying
the multi-country model to analysis of a bilateral trade war, I find that
aggregate productivity for countries directly involved in the trade war drops
more (1-2%) and that of countries not involved rises more (8-10%) when firms
endogenously vary their markets in response to the new conditions of
competition in local markets induced by the bilateral trade war. |