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Relationship-Specific Sunk Costs and Exporter Decisions

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    Abstract

    Using macro-level trade data, we investigate how different types of sunk costs influence decisions of exporters. We find that exporters’ decisions reflect sensibly their desire to minimize the relationship-specific sunk costs. Specifically, exporters of differentiated products are more likely to reenter the export market than exporters of homogenous products. Also, the former are more likely to stay in the export market and exhibit more stability when doing so than the later. All of our findings are consistent with the view that relationship with their foreign partners matters more for trade in differentiated products than in homogenous ones.

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    File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2007_06eco.pdf
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    Bibliographic Info

    Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2007_06.

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    Length: 21 pages
    Date of creation: 16 Oct 2007
    Date of revision:
    Handle: RePEc:dkn:econwp:eco_2007_06

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    Related research

    Keywords: International Trade; Market Reentry; Market Exit; Networks; Sunk Costs; Transition Probability Matrix;

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    1. Proudman, J. & Redding, S., 1998. "Evolving Patterns of International Trade," Economics Papers 144, Economics Group, Nuffield College, University of Oxford.
    2. Besedes, Tibor & Prusa, Thomas J., 2006. "Product differentiation and duration of US import trade," Journal of International Economics, Elsevier, vol. 70(2), pages 339-358, December.
    3. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
    4. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    5. Tibor Besedes & Thomas Prusa, 2006. "Ins, outs, and the duration of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 39(1), pages 266-295, February.
    6. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
    7. Keith Head & John Ries, 1998. "Immigration and Trade Creation: Econometric Evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 47-62, February.
    8. James E. Rauch, 1996. "Trade and Search: Social Capital, Sogo Shosha, and Spillovers," NBER Working Papers 5618, National Bureau of Economic Research, Inc.
    9. James A. Dunlevy, 2006. "The Influence of Corruption and Language on the Protrade Effect of Immigrants: Evidence from the American States," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 182-186, February.
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