profitable, thus increasing the number of goods exported by each firm.<sup>3</sup> We test these predictions in the case of the Dominican Republic exporters.

Using the export firm-level dataset provided by the Dominican Republic Customs Authorities for the period 2002-2009, we estimate the effect of tariff reductions on the number of new exporters and on the number of incumbents that introduce a new product or enter a market within the CAFTA area.<sup>4</sup> In addition, we evaluate the effect of tariff cuts on the probability of exiting a market. We find that tariff preferences had a positive effect on the number of new exporters, and the number of exporters that introduce new product-market combinations. The effect is however very small. This could suggest that there may be other factors preventing exporters from benefiting from the improved market access. Finally we find that tariff cuts reduce the probability of exiting a CAFTA market. The effect is also small.

This paper contributes to the bourgeoning literature on firm-level export dynamics. Most studies have focused on the relationship between export participation and firm productivity (i.e. firm-selection and learning by exporting). Some others have explored the effects of trade liberalization on the productivity of import competing plants (see for instance Pavcnik, 2002 and Trefler, 2004) but only very few look at the effects of tariffs on firms’ export behaviour. Bernard, Jensen and Schott (2003) analyze the effect of tariff reductions on the participation of firms in export markets in the case of U.S. manufacturing plants using survey data for three years over the period 1987-1997. They find that firms in industries with declining export costs face lower probabilities of death and higher probabilities of becoming exporters. Baldwin and Gu (2004) find in the case of Canadian manufacturing firms that the tariffs cuts following the U.S.Canada FTA (of 1988) promoted the entry of Canadian plants into export markets. Their data, however, do not include a destination dimension. Their estimates are therefore “aggregate” estimates i.e. not market-specific.

Our paper also relates to studies exploring the relationship between tariff cuts and the extensive margin. These studies use trade data at the product level, and can only investigate the effect of tariffs on the range of products but not on firms’ dynamics. Kehoe and Ruhl (2009) find evidence that tariff cuts benefited the exports of new goods in the case of NAFTA and the U.S.-Canada FTA, as well as in countries experiencing significant structural changes.<sup>5</sup> Gómez and Volpe (2008) obtain similar results on the effect of tariff preferences on the export of new goods for Colombia during the period 1996-2005. Their results suggest that lower tariffs had a positive effect on the number of exported products but also on the probability of exporting a product. Finally, Debaere and Mostashari (2005) look at the imports from 148 countries to the U.S. between 1989 and 2000 and find that both tariffs and tariff preferences have a positive but small effect on the probability of a product to be exported.

The rest of the paper is organized as follows: the next section presents the data. Sections 3 and 4 describe respectively the patterns of aggregate exports and of the firm-level extensive margin of the Dominican Republic. Section 5 looks at tariffs and the exporters’ behavior, while section 6 presents the empirical exercise and the results. The last section concludes.

> 3 A similar result is also predicted in Eckel et al. (2009).

> 4 In our study, we do not classify Costa Rica as part of the group of countries signatories of the DR-CAFTA since this country ratified the agreement only in 2009.

> 5 Episodes of structural change include China’s accession to the World Trade Organization, as well as the structural transformation episodes in Chile (1970-80) andKorea (1970-80)..

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