Export Survival with Uncertainty and Experimentation

Two central facts characterize the dynamics of firm exports. One is the known fact that export survival rates are strikingly low one year after entering a foreign market. The other is the novel fact that re-entrants in export markets are more likely to survive than first-time entrants. Traditional models of exporter dynamics cannot explain these two facts. In this paper, we develop a tractable model of exporter dynamics that can explain them by introducing uncertainty and experimentation. The model delivers analytical predictions on survival probabilities upon entry in a foreign market. We test the main mechanism of the model by exploiting variation in the degree of uncertainty across products and markets. The results support the relevance of uncertainty and experimentation as a central feature that characterize exporter dynamics.