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Learning to Export from Neighbors

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  • Ana Fernandes
  • Heiwai Tang

Abstract

This paper studies how learning from neighboring firms affects new exporters’ performance and dynamics. We develop a statistical decision model in which a firm updates its prior belief about demand of a foreign market based on the number of neighbors currently selling there, the level and heterogeneity of their export sales, and the firm’s own prior knowledge about the market. A positive signal about demand inferred from neighbors’ export performance raises the firm’s probability of entry and initial sales in the market, but lowers post-entry growth, conditional on survival. These learning effects are stronger when there are more neighbors revealing the signal or when the firm is less familiar with the market. Decisions to exit are independent of the prevalence of neighboring export activities. We find supporting evidence from the transaction-level export data for all Chinese exporters over 2000-2006. Our findings are robust to controlling for firms’ supply shocks, countries’ demand shocks, and city-country fixed effects.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4699.

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Date of creation: 2014
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Handle: RePEc:ces:ceswps:_4699

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Related research

Keywords: learning to export; knowledge spillover; uncertainty; export dynamics;

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References

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  1. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2010. "Multiple-Product Firms and Product Switching," American Economic Review, American Economic Association, vol. 100(1), pages 70-97, March.
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  11. Fernandes, Ana P. & Tang, Heiwai, 2012. "Determinants of vertical integration in export processing: Theory and evidence from China," Journal of Development Economics, Elsevier, vol. 99(2), pages 396-414.
  12. Amit Khandelwal, 2007. "The Long and Short (of) Quality Ladders," 2007 Meeting Papers 244, Society for Economic Dynamics.
  13. Nguyen, Daniel X., 2012. "Demand uncertainty: Exporting delays and exporting failures," Journal of International Economics, Elsevier, vol. 86(2), pages 336-344.
  14. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  15. Chaney, Thomas, 2011. "The Network Structure of International Trade," CEPR Discussion Papers 8240, C.E.P.R. Discussion Papers.
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