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Firm level export decisions: The role of information cost

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  • Wei, Xuan
  • Thornsbury, Suzanne

Abstract

Costs necessary to conform with rules and regulations governing market access (i.e. compliance costs) are uncertain prior to export or collection of information which is not cost free for an individual firm. In this paper, we extend the heterogeneous firm model of Melitz to analyze how an individual firm may reduce or eliminate the uncertainty of compliance costs by paying for the information cost prior to making decisions to export. Our model indicates that in the presence of uncertain compliance costs and non-zero information cost, average profits and productivity differences between exporting and non-exporting firms are reduced.

Suggested Citation

  • Wei, Xuan & Thornsbury, Suzanne, 2012. "Firm level export decisions: The role of information cost," Economics Letters, Elsevier, vol. 116(3), pages 487-490.
  • Handle: RePEc:eee:ecolet:v:116:y:2012:i:3:p:487-490
    DOI: 10.1016/j.econlet.2012.04.056
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    References listed on IDEAS

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    1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    2. Thornsbury, Suzanne & Roberts, Donna & Orden, David, 2004. "Measurement and Political Economy of Disputed Technical Regulations," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 36(03), pages 559-574, December.
    3. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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    Citations

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    Cited by:

    1. Bellalah, Mondher & Bradford, Marc & Zhang, Detao, 2016. "A general theory of corporate international investment under incomplete information, short sales and taxes," Economic Modelling, Elsevier, vol. 58(C), pages 615-626.
    2. Xuan Wei & Suzanne Thornsbury & David Schweikhardt, 2017. "Hurdles to Exporting: A Decomposition of Fixed Export Costs," Review of Economics & Finance, Better Advances Press, Canada, vol. 7, pages 1-18, February.

    More about this item

    Keywords

    Information cost; Uncertainty; Compliance costs; Export decisions; Profit; Productivity;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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