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of firms.The cost of delivering q units from i to j by a firm with productivity φ:⎧⎪⎨c ij (φ) =⎪⎩w i τ ijφ q ij(φ) + w i f ij : q ij (φ) > 00 : q ij (φ) = 0(3)and profits:π ij (φ) = p ij (φ)q ij (φ) − c ij (φ).Because costs, production, and profits depend on productivity and not the particular good, onemay switch between describing goods with ω, φ(ω), or φ as convenience dictates.Therefore,q j (ω) = q j (φ(ω)) = q ij (φ), l j (ω) = l j (φ(ω)) = l ij (φ), p j (ω) = p j (φ(ω)) = p ij (φ), andπ j (ω) = π j (φ(ω)) = π ij (φ). There is no need for a source subscript when the variety ω is knownbecause each variety is uniquely produced in the world.As in Chaney (2008), I only consider equilibria in which every country produces good 0 and themeasure of monopolistic competitors is proportionally fixed based on the labor force of the country.Good 0 is set to be the world wide numeraire. Its price is fixed to one in every country. Givenp(0) = 1 in every country, the labor productivity of producing good 0 in country j, w j , is the wagein country j, justifying (3).Because there is no free entry, monopolistic competitors may receive positive profits. The profitsfrom all firms in country j, Π j are redistributed to the consumer in country j. Thus the aggregateincome of country j is Y j = w j N j + Π j . The only substantive difference with this model and theChaney model is each country retains its own profits.I require each country to retain its ownprofits so state government has something to maximize with trade missions.An equilibrium is the set of available goods in each country, {Ω ∗ j }J j=1 and the associated productivitythresholds for operating there, { ˆφ ∗ ij }J i=1 ; consumption in each country for all goods availablethere, {x ∗ j (0)}J j=1 and {x∗ j (ω)|ω ∈Ω∗ j }J j=1 ; prices for each variety in each country that are producedat a positive level, {p ∗ j (0)}J j=1 and {p∗ j (ω)|ω ∈ Ω∗ j }J j=1 ; the wage in each country, {w∗ j }J j=1 ; aggregateprofits in each country {Π ∗ j }J j=1 ; and the production plans for each firm selling a positive amount ineach country, { ( qj ∗(0), l∗ j (0)) } J j=1 and {( qj ∗(ω), l∗ j (ω)) |ω ∈ Ω ∗ j }J j=1 ; such that the following conditions6
hold.• Good 0: q ∗ j (0) > 0, p∗ (0)w j (0) = w ∗ j , and q∗ j (0) = w j(0)l ∗ j (0), ∀j and ∑ Jj=1 q∗ j (0) = ∑ Jj=1 x∗ j (0).• Given prices, labor endowment, wages, profits, and the set of available goods, the representativeconsumer in each country maximizes (1) by choosing x ∗ (0) and x ∗ (ω) such thatp ∗ j (0)x j(0) + ∫ Ωp ∗ ∗ j (ω)x j(ω)dω ≤ wj ∗N j + Π ∗ j and x j(0), x j (ω) ≥ 0 ∀ω ∈ Ω ∗ j .j• Given wages, transportation and fixed costs, and the demand function for its good in eachcountry, each monopolistic competitor chooses p ∗ j (ω) to maximize ∑ Jj=1 p j(ω)q ∗ j (ω) − c∗ j (ω).• Individual goods and labor clearing condition: qj ∗(ω) = x∗ j (ω) and q∗ j (ω) = φ(ω)l∗ j (ω), ∀j∀ω.• Country labor clearing condition: ∑ Jk=1(l∗k(0) + ∫ L jk(l ∗ k (ω) + f jk) dω ) = N j , ∀j where L jk isthe measure of country j firms exporting to k.• Country profits condition: ∫ L j( ∑ Jk=1 π∗ k (ω)) dω = Π ∗ j , ∀j.• Ω ∗ j determined by L j and { ˆφ ∗ ij }J i=1 where ˆφ ∗ ij = sup {πij ∗ (φ) = 0}.φ≥1With a continuum of varieties, the equilibrium is identical under either Bertrand competitionor Cournot competition. Chaney (2008) proves the existence of this equilibrium for γ > σ − 1 > 0.Henceforth, all variables are assumed to be at their equilibrium values and thus the stars aredropped. Equilibrium properties include the following.Firms from i selling in country j set the price p j(φ(ω))= pij (φ) =σσ−1w i τ ijφ. For some firms,their productivity is low enough that there does not exist a price such that π ij (φ) ≥ 0. Thereforefor each (i, j) there exists a threshold productivity, ˆφ ij such that firms in i with φ < ˆφ ij choose notto export to j. Among other fundamentals and parameters, this threshold productivity dependson the fixed cost to export f ij :( σˆφ ij =µγγ − (σ − 1)) 1γ× Y− 1 γj( )wi τ ij× (w i f ij ) 1σ−1 . (4)θ jAs f ij increases, the threshold productivity is larger. Notice because f ii = 0, all L i firmsproduce domestically. Using (2), the measure of firms in i exporting to j is L ij = L i(1 − H( ˆφij ) ) .7
Page 3 and 4: 1 IntroductionDuring the week of Oc
Page 5 and 6: to increase sales further.From the
Page 7: for one another. Labor does not red
Page 11 and 12: If there are zero trade missions th
Page 13 and 14: diversionary impact of missions. Le
Page 15 and 16: Figure 1. Economics of the theorem.
Page 17 and 18: Figure 2. Country RGDP and state tr
Page 19 and 20: Figure 3. State total value of manu
Page 21 and 22: data. The regression equation corre
Page 23 and 24: Table 1.OLS Estimates of Export Ela
Page 25 and 26: 5 ConclusionU.S. state governors fr
Page 27 and 28: International Monetary Fund 2006. W
Page 29 and 30: Proof. From Chaney, aggregate state
Page 31: Government. Finally there must be a

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