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Note: A pilot experimental test of trade hysteresis
Author(s) -
Ansic David
Publication year - 1995
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090160208
Subject(s) - hysteresis , economics , volatility (finance) , test (biology) , econometrics , paleontology , physics , quantum mechanics , biology
Developing tests of the theories of trade, using traditional empirical and econometric techniques, has been shown to be controversial and inconclusive. This paper reports on some encouraging results arising out of a pilot experiment designed to test the Krugman model of trade hysteresis. This pilot experiment reveals that a definite hysteresis effect is evident when subjects exit a foreign market in which they have been trading after having paid fixed costs to enter the market. Results also show that the degree of hysteresis evident is a function of the absolute and relative size of entry costs, which has implications for the relationship between size of business, volatility of exchange rates and international trade.