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Geography and Firm Exports: New Evidence on the Nature of Sunk Costs

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Author Info
Lawless, Martina (Central Bank and Financial Services Authority of Ireland)

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Abstract

This paper presents an extension of the analysis of the geographic dimension of trade, by examining the trading patterns of individual firms. Aggregate data does not tell us if a sector is geographically diversified because there are many exporting firms, each of which specialises in a separate destination, or if the firms themselves are selling their exports in many markets. This analysis is made possible by access to a new survey dataset of Irish firms, which includes detailed information on firm characteristics and on the destinations of their exports over a two-year period. In line with Eaton, Kortum and Kramarz (2004), we find that a large number of firms serve only the domestic market and many exporting firms export to a single foreign market. Although there is little movement of firms into and out of exporting, firms’ involvement in individual export markets is much more dynamic. Over thirty percent of firms change their market coverage, usually by entering or exiting one additional market. This is interpreted as evidence that the bulk of any sunk cost encountered in exporting in incurred during the initial entry to the export market. Subsequent entry to additional markets is made easier by prior export experience, which reduces the sunk cost of extending market coverage.

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Publisher Info
Paper provided by Central Bank & Financial Services Authority of Ireland (CBFSAI) in its series Research Technical Papers with number 1/RT/06.

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Length: 30 pages
Date of creation: Mar 2006
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Handle: RePEc:cbi:wpaper:1/rt/06

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade

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This page was last updated on 2009-12-3.

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