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Volatility and diversification of exports: Firm-level theory and evidence

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  • Vannoorenberghe, Gonzague
  • Wang, Zheng
  • Yu, Zhihong

Abstract

We show using detailed firm-level Chinese data that, among small exporters, firms selling to a more diversified set of countries have more volatile exports, while the opposite holds among large exporters. This a priori surprising result for small firms is robust to a wide array of specifications and controls. Our theoretical explanation for these observations rests on the presence of fixed costs of exports per destination and short-run demand shocks. In this setup, the volatility of a firm's exports depends not only on the diversification of its destination portfolio but also on whether it exports permanently to all markets. Among small exporters, a more diversified pool of destinations makes the firm more likely to export occasionally to some markets, thereby raising export volatility.

Suggested Citation

  • Vannoorenberghe, Gonzague & Wang, Zheng & Yu, Zhihong, 2016. "Volatility and diversification of exports: Firm-level theory and evidence," European Economic Review, Elsevier, vol. 89(C), pages 216-247.
  • Handle: RePEc:eee:eecrev:v:89:y:2016:i:c:p:216-247
    DOI: 10.1016/j.euroecorev.2016.07.002
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    More about this item

    Keywords

    Volatility; Diversification; Exports;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade

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