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What Drives firms´ Geographic Diversification in International Markets?

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  • Tomás Castagnino

    (Central Bank of Argentina)

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    Abstract

    I build a model to show that if some export costs are sunk and shared between alike destinations, the decision of a firm to enter a market is a function of its experience in a similar one. Using a rich firm-level dataset for Argentina I test this prediction and I provide evidence on the role and nature of shared export costs. Product adaptation costs, associated to market similarities in geography and culture, and quality upgrading costs, associated to market similarities in income level, are found to be significant. Finally, I show that the failure to consider firms´ idiosyncratic experience in international markets leads to an underestimation of the difficulty to enter export markets.

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    File URL: http://www.bcra.gov.ar/pdfs/investigaciones/WP_52_2011i.PDF
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    Bibliographic Info

    Paper provided by Central Bank of Argentina, Economic Research Department in its series BCRA Working Paper Series with number 201152.

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    Length: 21 pages
    Date of creation: Aug 2011
    Date of revision:
    Handle: RePEc:bcr:wpaper:201152

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    Related research

    Keywords: experience; export costs; firm-level; geographic diversification; quality;

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    24. Swann, Peter & Temple, Paul & Shurmer, Mark, 1996. "Standards and Trade Performance: The UK Experience," Economic Journal, Royal Economic Society, vol. 106(438), pages 1297-1313, September.
    25. Brenton, Paul & Newfarmer, Richard, 2007. "Watching more than the Discovery channel : export cycles and diversification in development," Policy Research Working Paper Series 4302, The World Bank.
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