Seminario | Hedging Trade Cost Uncertainty

Seminario | Hedging Trade Cost Uncertainty

Expositor | Leandro Navarro | Universidad de Bayreuth (Alemania)
Coatuores: Hartmut Egger (Bayreuth), Peter Egger (ETH Zürich) y Katharina Erhardt (DICE Düsseldorf)

Abstract
This paper studies how international firms hedge against trade cost uncertainty. We analyse two margins of adjustment: foreign market entry (exporting vs foreign direct investment) and invoicing in FOB or CIF prices. In a unified model with oligopolistic competition, we show that trade cost volatility affects firms’ entry decisions through market shares and interacts systematically with invoicing strategies under sticky prices. Firms with small market shares prefer exporting and FOB-price invoicing, while firms with large market shares favour foreign investment and CIF-price invoicing. Using a novel transaction-level measure of trade cost volatility constructed from French customs data, we provide empirical support for these mechanisms and document joint determination of entry and invoicing decisions.