Learning to export and the timing of entry to export markets
AbstractFirms that engage in exporting normally enter their first export markets a number of years after beginning to sell locally, then enter subsequent export markets progressively. Standard trade models are essentially static and do not capture these elementary facts about exporting, which biases the estimation of trade patterns and limits understanding of potentially important aspects of firms’ exporting behaviour. This paper proposes a model for the timing of entry to new export markets. The model endogenously generates the timing of entry to each market through a learning mechanism: the fixed cost of entry to a given export market is reduced by the experience gained from having entered other markets. More productive firms are less sensitive to the learning effect and therefore (1) enter markets more quickly and (2) enter larger markets earlier and smaller markets later than less productive firms. These predictions are confirmed using Swedish firm-level data. The latter prediction in particular is difficult to explain using alternative mechanisms and therefore endorses the learning effect as an explanation for the timing of entry. The model additionally predicts that more productive firms export more widely and that firms of all productivity levels enter nearer markets earlier, which are strong features of the data.
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Bibliographic InfoPaper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2011:17.
Length: 50 pages
Date of creation: 05 May 2011
Date of revision: 24 Aug 2011
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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
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More information through EDIRC
export market entry; learning by exporting; fixed costs; heterogeneous firms;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
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- Van Biesebroeck, Johannes, 2005.
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- Muñoz Sepulveda, Jesus Angel & Rodriguez, Diego, 2013. "Geographical and Industrial Spillovers in entry decisions across export markets," MPRA Paper 48063, University Library of Munich, Germany.
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