Survival in export markets

Albornoz, Facundo; Fanelli, Sebasti�n; Hallak, Juan Carlos

Abstract

This paper explores the determinants of firm survival in export markets. We build an exporter dynamics model where firms need to pay market-specific sunk and fixed costs to operate abroad and where firm export profitability in each foreign market follows a geometric Brownian motion. Firms also differ ex ante by a constant market-specific profitability shifter. We derive the probability of export survival upon entry in a market and show that it increases with the ratio of sunk to fixed costs and is insensitive to the profitability shifters. Also, we show that the survival probability is unaffected by fixed costs if sunk costs are zero. We take the model to the data using firm-level Argentine export information. We find that survival rates decrease with distance, which the model rationalizes with sunk costs that increase with distance proportionally less than fixed costs. Estimated sunk costs are small. In fact, a counterfactual exercise shows that removing those costs increases aggregate exports by less than 1.5%. Finally, we also find that survival increases with a firm’s export experience. Analogously to distance, the model’s implication of this empirical result is that experience reduces sunk costs proportionally less than fixed costs.

Citation

Albornoz, F., Fanelli, S., & Hallak, J. C. (2016). Survival in export markets. Journal of International Economics, 102, 262-281. https://doi.org/10.1016/j.jinteco.2016.05.003

• Journal Article Type: Article
• Acceptance Date: May 25, 2016
• Online Publication Date: Jun 15, 2016
• Publication Date: Sep 30, 2016
• Deposit Date: Aug 2, 2016
• Publicly Available Date: Aug 2, 2016
• Journal: Journal of International Economics
• Print ISSN: 0022-1996
• Electronic ISSN: 0022-1996
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 102
• Pages: 262-281
• DOI: https://doi.org/10.1016/j.jinteco.2016.05.003
• Keywords: Survival; Export dynamics; Fixed cost; Sunk cost; Productivity; Firm heterogeneity; Geometric Brownian motion
• Public URL: https://nottingham-repository.worktribe.com/output/794884
• Publisher URL: http://www.sciencedirect.com/science/article/pii/S0022199616300666