Accounting for the Growth of Exporters

We study a model of establishment dynamics in which the acquisition of customers can be endogenously sluggish due to the presence of search frictions. We use time series data of how firms respond to shocks in markets in which they already operate to discipline the key friction that can slow customer turnover. Our estimation involves fitting SVAR-derived impulse responses of wedges that characterize the distance between data and a prototype frictionless economy. Using the estimated model, we ask: Does the model account for the observed slow growth of sale after firms enter into exporting, while being consistent with other basic trade facts? Our answer is: Largely, yes. The search technology parameters that fit the data well give rise to customer base dynamics that is approximately similar to a simple word-of-mouth diffusion of matches.