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Export market exit and firm survival: theory and first evidence

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Author Info

  • Sanne Hiller

    ()
    (Department of Economics, Leuphana University Lueneburg, Germany)

  • Philipp J.H. Schroeder

    ()
    (Aarhus University, School of Business and Social Sciences, Department of Economics and Business, Denmark)

  • Allan Sorensen

    ()
    (Aarhus University, School of Business and Social Sciences, Department of Economics and Business, Denmark)

Abstract

This paper deploys a dynamic extension of the Melitz (2003) model to generate predictions on export market exit and firm survival in a setting where firms endogenously make exit decisions. The central driver of the model dynamics is the inclusion of exogenous economy wide technological progress. The model predicts – inter alia – that a higher relative productivity not only increases the likelihood of exporting, but also the chances of firm survival and continued export market engagements. We relate these predictions to the empirical stylized facts of export market exit and firm survival based on Danish firm-level data. We find strong evidence that firms experience a decline in market share prior to export market exit and prior to death and that the firms discontinuing their exporting activity or closing down tend to be small. Overall, our empirical results support the central predictions from the model.

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Bibliographic Info

Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 262.

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Length: 31 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:lue:wpaper:262

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Web page: http://leuphana.de/institute/ivwl.html

Related research

Keywords: Intra-industry trade; entry/exit; heterogeneous firms; technological change;

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References

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  1. Thierry Mayer & Gianmarco Ottaviano, 2008. "The Happy Few: The Internationalisation of European Firms," Intereconomics: Review of European Economic Policy, Springer, vol. 43(3), pages 135-148, May.
  2. Steven Klepper, 2002. "Firm Survival and the Evolution of Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 37-61, Spring.
  3. Impullitti, Giammario & Irarrazabal, Alfonso A. & Opromolla, Luca David, 2013. "A theory of entry into and exit from export markets," Journal of International Economics, Elsevier, vol. 90(1), pages 75-90.
  4. Richard E. Caves, 1998. "Industrial Organization and New Findings on the Turnover and Mobility of Firms," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 1947-1982, December.
  5. Alfonso A. Irarrazabal & Luca David Opromolla, 2008. "A Theory of Entry and Exit into Exports Markets," Working Papers w200820, Banco de Portugal, Economics and Research Department.
  6. Costas Arkolakis, 2009. "A Unified Theory of Firm Selection and Growth," CESifo Working Paper Series 2679, CESifo Group Munich.
  7. Joachim Wagner, 2011. "Exports, Imports and Firm Survival: First evidence for manufacturing enterprises in Germany," Working Paper Series in Economics 211, University of Lüneburg, Institute of Economics.
  8. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  9. Balazs Murakozy & Gabor Bekes, 2009. "Temporary Trade," IEHAS Discussion Papers 0909, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  10. Philipp J.H. Schröder & Allan Sørensen, 2011. "Firm Exit, Technological Progress and Trade," Economics Working Papers 2011-17, School of Economics and Management, University of Aarhus.
  11. James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc.
  12. Dasgupta, Partha & Stiglitz, Joseph, 1981. "Entry, innovation, exit : Towards a dynamic theory of oligopolistic industrial structure," European Economic Review, Elsevier, vol. 15(2), pages 137-158.
  13. 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.
  14. Amil Petrin & Brian P. Poi & James Levinsohn, 2004. "Production function estimation in Stata using inputs to control for unobservables," Stata Journal, StataCorp LP, vol. 4(2), pages 113-123, June.
  15. Fariñas, Jose C. & Ruano, Sonia, 2005. "Firm productivity, heterogeneity, sunk costs and market selection," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 505-534, September.
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Cited by:
  1. Mawuli Segnon & Thomas Lux, 2013. "Multifractal Models in Finance: Their Origin, Propterties, and Applications," Kiel Working Papers 1860, Kiel Institute for the World Economy.
  2. Görg, Holger & Spaliara, Marina-Eliza, 2013. "Export market exit, financial pressure and the crisis," CEPR Discussion Papers 9599, C.E.P.R. Discussion Papers.

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