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Volatility and diversification of exports: Firm-level theory and evidence

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  • Vannoorenberghe, Gonzague
  • Wang, Zheng
  • Yu, Zhihong

Abstract

We show using detailed firm-level Chinese data that, among small exporters, firms selling to a more diversified set of countries have more volatile exports, while the opposite holds among large exporters. This a priori surprising result for small firms is robust to a wide array of specifications and controls. Our theoretical explanation for these observations rests on the presence of fixed costs of exports per destination and short-run demand shocks. In this setup, the volatility of a firm's exports depends not only on the diversification of its destination portfolio but also on whether it exports permanently to all markets. Among small exporters, a more diversified pool of destinations makes the firm more likely to export occasionally to some markets, thereby raising export volatility.

Suggested Citation

  • Vannoorenberghe, Gonzague & Wang, Zheng & Yu, Zhihong, 2016. "Volatility and diversification of exports: Firm-level theory and evidence," European Economic Review, Elsevier, vol. 89(C), pages 216-247.
  • Handle: RePEc:eee:eecrev:v:89:y:2016:i:c:p:216-247
    DOI: 10.1016/j.euroecorev.2016.07.002
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    Cited by:

    1. Santosh Kumar Sahu & Sunder Ramaswamy & Abishek Choutagunta, "undated". "Export Performance, Innovation, and Productivity in Indian Manufacturing Firms," Working Papers 2017-159, Madras School of Economics,Chennai,India.
    2. Chiriacescu, Bogdan & Lalinsky, Tibor & Čede, Urška & Meriküll, Jaanika & Harasztosi, Péter, 2016. "Export characteristics and output volatility: comparative firm-level evidence for CEE countries," Working Paper Series 1902, European Central Bank.
    3. Joachim Wagner, 2016. "A survey of empirical studies using transaction level data on exports and imports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 215-225, February.
    4. Federico Esposito, 2016. "Risk Diversification and International Trade," 2016 Meeting Papers 302, Society for Economic Dynamics.
    5. Casas, Camila & Diez, Federico J. & Gonzalez, Alejandra, 2017. "Heterogeneous exporters: quantitative differences and qualitative similarities," Working Papers 16-26, Federal Reserve Bank of Boston.
    6. Jérôme Héricourt & Clément Nedoncelle, 2015. "Relative Real Exchange-Rate Volatility, Multi-Destination Firms and Trade: Micro Evidence and Aggregate Implications," Working Papers 2015-03, CEPII research center.

    More about this item

    Keywords

    Volatility; Diversification; Exports;

    JEL classification:

    • F1 - International Economics - - Trade

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