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Uncertainty and the export decisions of Dutch firms

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  • Arjan Lejour

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  • Harold Creusen

Abstract

This paper analyses the export market entry decisions of Dutch firms and their subsequent growth or market exit. When entering new markets, firms have to learn market conditions and have to search for new trade relations under uncertainty. We show that firms follow a stepping stone approach for reaching markets further away (physically and culturally) by including the distance to accessed export markets in our analysis. They first enter more nearby markets before moving to more distant markets. Moreover, we find that the presence of support offices and trade missions in destination countries, particularly middle income countries, stimulate the entry of new exporters and export growth. Knowledge spillovers from firms with the same export destinations have also positive effects on market entry. These conclusions follow from using detailed international trade data by firm and destination between 2002 and 2008 combined with firm data and export market characteristics. We find that about 5% of all Dutch exporters have just started in their first market and a similar share of exporters ceases all exports. Still, the starting exporters increase their exports very fast. In each market their export growth in their third year as exporter is about twice as high as for established exporters. Many starters also increase their exports by expanding their number of destinations, but they will retreat swiftly if they are not successful. For all exporters, we find that more productive and larger firms are more inclined to enter (additional) export markets, and that larger firms are less likely to leave a market. Market characteristics are important as well. Distance to the home country (apart from distance to accessed export markets) and import tariffs reduce the probability to enter the market and increase the probability to exit.

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Bibliographic Info

Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 183.

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Date of creation: Jul 2011
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Handle: RePEc:cpb:discus:183

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  1. Andrew Bernard & J Bradford Jensen & Stephen Redding & Peter Schott, 2009. "The Margins of U.S. Trade (Long Version)," Working Papers, Center for Economic Studies, U.S. Census Bureau 09-18, Center for Economic Studies, U.S. Census Bureau.
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Citations

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Cited by:
  1. Peter Bergeijk & Fabienne Fortanier & Harry Garretsen & Henri Groot & Selwyn Moons, 2011. "Productivity and Internationalization: A Micro-Data Approach," De Economist, Springer, Springer, vol. 159(4), pages 381-388, December.
  2. Marcel van den Berg & Charles van Marrewijk, 2013. "Imports and productivity: the impact of geography and factor intensity," Working Papers, Utrecht School of Economics 13-12, Utrecht School of Economics.
  3. Moons, S.J.V. & van Bergeijk, P.A.G., 2013. "A meta-analysis of economic diplomacy and its effect on international economic flows," ISS Working Papers - General Series, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague 50074, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
  4. Gullstrand, Joakim & Persson, Maria, 2012. "How to Combine High Sunk Costs of Exporting and Low Export Survival," Working Papers, Lund University, Department of Economics 2012:32, Lund University, Department of Economics.
  5. Filippo Vergara Caffarelli & Giovanni Veronese, 2013. "Italy’s system for supporting internationalization," Questioni di Economia e Finanza (Occasional Papers), Bank of Italy, Economic Research and International Relations Area 196, Bank of Italy, Economic Research and International Relations Area.
  6. Lili Wang & Yong Zhao, 2013. "Does Experience Facilitate Entry into New Export Destinations?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 21(5), pages 36-59, 09.

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