Trade Adjustment Costs in Developing Countries: - World Bank ...

Market Penetration Cost and International Trade 301The above implies that the learning mechanism is a promising avenue for futureresearch related to entry costs. The avenue of modeling learning in a model ofinternational trade has been recently adapted by Eaton, et al. (2008), and Ruhl andWillis (2008). 12 Of course an outstanding challenge is to relate and connect thisresearch to the findings of the theory of endogenous market penetration costs asis done for example by Eaton, et al. (2008).7. CONCLUSIONIn this note we have briefly discussed the implications of a new theory of entrycosts to foreign markets. This theory postulates that entry costs are endogenousrather than fixed, in the sense that paying higher costs allows firms to increasetheir market share in a country. We have shown that such a formulation of entrycosts is consistent with a number of important regularities on international trade.In addition, we argue that this new modeling of entry costs can have valuablepractical implications related to the way we think about adjustments to tradeopportunities.Costas Arkolakis is an Assistant Professor in the Department of Economics ofYale University.Olga Timoshenko is a Ph.D. candidate in the Department of Economics of YaleUniversity.12 Arkolakis and Papageorgiou (2009) also model learning in a model of firm heterogeneity.