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Firm-Level Heterogeneity and the Decision to Export: A Real Option Approach

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Author Info

  • Naudé, Wim

    ()
    (Maastricht University)

  • Gries, Thomas

    ()
    (University of Paderborn)

  • Bilkic, Natasa

    ()
    (University of Paderborn)

Abstract

In "new" new international trade theory, whether firms export or not are determined by their productivity. These models assume that firms enter a market to find their productivity levels revealed to them as in a lottery. In this paper we propose an alternative way to model whether firms export or not, namely as a firm-level decision akin to an investment decision with a real option value. We show that endogenizing the export decision is consistent with patterns of productivity and exporting reported in the empirical literature.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7346.

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Length: 31 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7346

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Related research

Keywords: international new ventures; firm-level heterogeneity; start-ups; stochastic dynamic programming; trade; exports; productivity; real option theory; investment; firms; international entrepreneurship;

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References

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  1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 21(3), pages 105-130, Summer.
  2. H.H. Chang & C. van Marrewijk, 2011. "Firm Heterogeneity and Development: Evidence from Latin American countries," Working Papers, Utrecht School of Economics 11-14, Utrecht School of Economics.
  3. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, Econometric Society, vol. 71(6), pages 1695-1725, November.
  4. Sofronis Clerides & Saul Lach & James Tybout, 1996. "Is "Learning-by-Exporting" Important? Micro-Dynamic Evidence from Colombia, Mexico and Morocco," NBER Working Papers 5715, National Bureau of Economic Research, Inc.
  5. Gilroy, Bernard Michael & Lukas, Elmar, 2005. "The Choice between Greenfield Investment and Cross-border Acquisition: A Real Option Approach," MPRA Paper 18819, University Library of Munich, Germany.
  6. Yalcin, Erdal & Sala, Davide, 2012. "Uncertain productivity growth and the choice between FDI and export," Discussion Papers of Business and Economics 19/2012, Department of Business and Economics, University of Southern Denmark.
  7. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers, Princeton, Department of Economics - Financial Research Center 91, Princeton, Department of Economics - Financial Research Center.
  8. Davide Castellani & Giorgia Giovannetti, 2010. "Productivity and the international firm: dissecting heterogeneity," Journal of Economic Policy Reform, Taylor and Francis Journals, Taylor and Francis Journals, vol. 13(1), pages 25-42.
  9. Naude, Wim & Rossouw, Stephanie, 2009. "Early International Entrepreneurship in China: Extent and Determinants," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  10. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(517), pages F134-F161, 02.
  11. Marco Ceccagnoli, 2005. "FIRM HETEROGENEITY, IMITATION, AND THE INCENTIVES FOR COST REDUCING R&D EFFORT -super-* ," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 53(1), pages 83-100, 03.
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