How to Combine High Sunk Costs of Exporting and Low Export Survival
AbstractIn endeavouring to explain the empirical puzzle that the sunk costs of exporting are important, but that, at the same time, trade flows do not, on average, survive for very long, this paper explores the concepts of core and peripheral markets. First, it illustrates that if the importance of sunk costs as well as the expected future returns from exporting are different, depending on whether the export decision refers to a core or a peripheral market, it is plausible that while firms will tend to stay on the core market for a long time, they will enter and exit the peripheral market much more frequently. Second, using firm-product-destination-specific export data for all firms in the Swedish food chain for the period 1997-2007, an empirical test is carried out to ascertain whether there is support for the hypothesis that trade duration will be longer for core markets. Employing two variables that capture different aspects of the core/periphery dimension, it is found that firms will indeed tend to stay longer in their core markets, while export decisions regarding peripheral markets are much less long-term. The conclusion, therefore, is that the empirical puzzle can be explained by taking into account the fact that the trade hysteresis literature builds on data on the core market decision to export or not, and that the trade survival literature also includes data on decisions to stay in or exit peripheral markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2012:32.
Length: 29 pages
Date of creation: 27 Nov 2012
Date of revision:
Contact details of provider:
Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
More information through EDIRC
Sunk Costs; Trade Duration; Survival; Core v. Peripheral Markets; Sweden; Firm-Level Data; Discrete-Time Hazard Models;
Other versions of this item:
- Persson, Maria & Gullstrand, Joakim, 2013. "How to Combine High Sunk Costs of Exporting and Low Export Survival," Working Paper Series 962, Research Institute of Industrial Economics.
- F10 - International Economics - - Trade - - - General
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marc J. Melitz, 2003.
"The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity,"
Econometric Society, vol. 71(6), pages 1695-1725, November.
- Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
- Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
- Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000.
"Plants and Productivity in International Trade,"
Boston University - Institute for Economic Development
105, Boston University, Institute for Economic Development.
- Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
- Andrew B. Bernard & Jonathan Eaton & J. Bradford Jenson & Samuel Kortum, 2000. "Plants and Productivity in International Trade," NBER Working Papers 7688, National Bureau of Economic Research, Inc.
- 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.
- Holger Görg & Richard Kneller & Balázs Muraközy, 2008.
"What makes a successful export?,"
Kiel Working Papers
1399, Kiel Institute for the World Economy.
- Holger Görg & Richard Kneller & Balázs Muraközy, . "What Makes a Successful Exporter?," Discussion Papers 08/01, University of Nottingham, GEP.
- Görg, Holger & Kneller, Richard & Muraközy, Balázs, 2007. "What Makes a Successful Export?," CEPR Discussion Papers 6614, C.E.P.R. Discussion Papers.
- Holger Görg & Richard Kneller & Balázs Muraközy, 2008. "What Makes a Successful Export?," CeFiG Working Papers 2, Center for Firms in the Global Economy, revised 01 Feb 2008.
- Cadot, Olivier & Iacovone, Leonardo & Pierola, Denisse & Rauch, Ferdinand, 2011.
"Success and failure of African exporters,"
Policy Research Working Paper Series
5657, The World Bank.
- Hess, Wolfgang & Persson, Maria, 2010.
"Exploring the Duration of EU Imports,"
2010:4, Lund University, Department of Economics.
- Wolfgang Hess & Maria Persson, 2011. "Exploring the duration of EU imports," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 147(4), pages 665-692, November.
- Mélise Jaud & Madina Kukenova, 2011.
"Financial development and survival of African agri-food exports,"
- Jaud, Melise & Kukenova, Madina, 2011. "Financial development and survival of African agri-food exports," Policy Research Working Paper Series 5649, The World Bank.
- Ottaviano, Gianmarco & Melitz, Marc, 2008.
"Market Size, Trade, and Productivity,"
3229096, Harvard University Department of Economics.
- Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
- Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d\'Agliano, University of Milano.
- Dixit, A., 1988.
"Entry And Exit Decisions Under Uncertainty,"
91, Princeton, Department of Economics - Financial Research Center.
- Andrew B. Bernard & J. Bradford Jensen, 2001.
"Why Some Firms Export,"
NBER Working Papers
8349, National Bureau of Economic Research, Inc.
- Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 205-28, May.
- Ana Cristina Molina and Marco Fugazza, 2009. "The determinants of trade survival," IHEID Working Papers 05-2009, Economics Section, The Graduate Institute of International Studies, revised Jun 2009.
- Costas Arkolakis, 2008.
"Market Penetration Costs and the New Consumers Margin in International Trade,"
NBER Working Papers
14214, National Bureau of Economic Research, Inc.
- Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151 - 1199.
- Jorge Tovar & Luis Roberto Martínez, 2011. "Diversification, Networks and the Survival of Exporting Firms," DOCUMENTOS CEDE 008733, UNIVERSIDAD DE LOS ANDES-CEDE.
- Wolfgang Hess & Maria Persson, 2012. "The duration of trade revisited," Empirical Economics, Springer, vol. 43(3), pages 1083-1107, December.
- Pekka Ilmakunnas & Satu Nurmi, 2010.
"Dynamics of Export Market Entry and Exit,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 112(1), pages 101-126, 03.
- Besedes, Tibor & Prusa, Thomas J., 2011.
"The role of extensive and intensive margins and export growth,"
Journal of Development Economics,
Elsevier, vol. 96(2), pages 371-379, November.
- Tibor Besedes & Thomas J. Prusa, 2007. "The Role of Extensive and Intensive Margins and Export Growth," NBER Working Papers 13628, National Bureau of Economic Research, Inc.
- Bosco Sabuhoro, Jean Gervais, Yvan, 2004. "Factors Determining the Success or Failure of Canadian Establishments on Foreign Markets: A Survival Analysis Approach," Analytical Studies Branch Research Paper Series 2004220e, Statistics Canada, Analytical Studies Branch.
- Freund, Caroline & Pierola, Martha Denisse, 2010. "Export entrepreneurs : evidence from Peru," Policy Research Working Paper Series 5407, The World Bank.
- Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2007.
"Market Entry Costs, Producer Heterogeneity, and Export Dynamics,"
Econometric Society, vol. 75(3), pages 837-873, 05.
- Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2001. "Market entry costs, producer heterogeneity and export dynamics," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 03-10, Indian Statistical Institute, New Delhi, India.
- Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2001. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," NBER Working Papers 8629, National Bureau of Economic Research, Inc.
- Gullstrand, Joakim, 2011. "Firm and destination-specific export costs: The case of the Swedish food sector," Food Policy, Elsevier, vol. 36(2), pages 204-213, April.
- Paul Brenton & Christian Saborowski & Erik von Uexkull, 2010.
"What Explains the Low Survival Rate of Developing Country Export Flows?,"
World Bank Economic Review,
World Bank Group, vol. 24(3), pages 474-499, December.
- Brenton, Paul & Saborowski, Christian & von Uexkull, Erik, 2009. "What explains the low survival rate of developing country export flows ?," Policy Research Working Paper Series 4951, The World Bank.
- Silviano Esteve-Pérez & Vicente Pallardó-López & Francisco Requena-Silvente, 2011.
"The duration of firm-destination export relationships: Evidence from Spain, 1997-2006,"
1102, Department of Applied Economics II, Universidad de Valencia.
- Silviano Esteve-Pérez & Francisco Requena-Silvente & Vicente J. Pallardó-Lopez, 2013. "The Duration Of Firm-Destination Export Relationships: Evidence From Spain, 1997–2006," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 159-180, 01.
- Békés, Gábor & Muraközy, Balázs, 2012.
"Temporary trade and heterogeneous firms,"
Journal of International Economics,
Elsevier, vol. 87(2), pages 232-246.
- Bee Yan Aw & Sukkyun Chung & Mark J. Roberts, 2003.
"Productivity, output, and failure: a comparison of taiwanese and korean manufacturers,"
Royal Economic Society, vol. 113(491), pages F485-F510, November.
- Bee Yan Aw & Sukkyun Chung & Mark J. Roberts, 2002. "Productivity, Output, and Failure: A Comparison of Taiwanese and Korean Manufacturers," NBER Working Papers 8766, National Bureau of Economic Research, Inc.
- Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
- Harold Creusen & Arjan Lejour, 2011.
"Uncertainty and the export decisions of Dutch firms,"
FIW Working Paper series
- Arjan Lejour & Harold Creusen, 2011. "Uncertainty and the export decisions of Dutch firms," CPB Discussion Paper 183, CPB Netherlands Bureau for Economic Policy Analysis.
- Christian Volpe Martincus & Jerónimo Carballo, 2008. "Survival of New Exporters in Developing Countries: Does it Matter How They Diversify?," IDB Publications 9291, Inter-American Development Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Edgerton).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.