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How to combine high sunk costs of exporting and low export survival

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  • Joakim Gullstrand
  • Maria Persson

Abstract

In endeavouring to explain the empirical puzzle that the sunk costs of exporting are important, but that, at the same time, trade flows do not, on average, survive for very long, this paper explores the concepts of core and peripheral markets. First, it illustrates that if the importance of sunk costs as well as the expected future returns from exporting are different, depending on whether the export decision refers to a core or a peripheral market, it is plausible that while firms will tend to stay on the core market for a long time, they will enter and exit the peripheral market much more frequently. Second, using firm-product-destination-specific export data for all firms in the Swedish food chain for the period 1997–2007, an empirical test is carried out to ascertain whether there is support for the hypothesis that trade duration will be longer for core markets. Employing two variables that capture different aspects of the core/periphery dimension, it is found that firms will indeed tend to stay longer in their core markets, while export decisions regarding peripheral markets are much less long-term. The conclusion, therefore, is that the empirical puzzle can be explained by taking into account the fact that the trade hysteresis literature builds on data on the core market decision to export or not, while the trade survival literature also includes data on decisions to stay in or exit peripheral markets. Copyright Kiel Institute 2015

Suggested Citation

  • Joakim Gullstrand & Maria Persson, 2015. "How to combine high sunk costs of exporting and low export survival," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(1), pages 23-51, February.
  • Handle: RePEc:spr:weltar:v:151:y:2015:i:1:p:23-51
    DOI: 10.1007/s10290-014-0204-7
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    5. Tinoush Jamali Jaghdani & Ulf Johansen & Maitri Thakur & Thomas Glauben, 2024. "Salmon trade duration: The application of firm‐level trade transaction data from the Norwegian salmon industry," Agribusiness, John Wiley & Sons, Ltd., vol. 40(2), pages 325-348, April.
    6. Bandick, Roger, 2020. "Global sourcing, firm size and export survival," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 14, pages 1-29.
    7. Türkcan, Kemal, 2016. "On the role of vertical differentiation in enhancing survival of export flows: Evidence from a developing country," MPRA Paper 71023, University Library of Munich, Germany.
    8. Arnarson, Björn Thor, 2015. "Bridging Trade Barriers: Evaluating Models of Multi-Product Exporters," Working Papers 2015:6, Lund University, Department of Economics, revised 14 Oct 2016.
    9. Silviano Esteve‐Pérez, 2021. "Previous experience, experimentation and export survival: Evidence from firm‐product‐destination level data," The World Economy, Wiley Blackwell, vol. 44(9), pages 2638-2682, September.
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    20. Majune Kraido Socrates & Eliud Moyi & Kamau Gathiaka, 2020. "Explaining Export Duration in Kenya," South African Journal of Economics, Economic Society of South Africa, vol. 88(2), pages 204-224, June.
    21. Jeong, Jaehoon & Yang, Jae-Suk, 2023. "Why do some firms stop exporting?," International Business Review, Elsevier, vol. 32(4).
    22. Jaghdani, Tinoush Jamali & Johansen, Ulf & Thakur, Maitri, 2022. "The Duration and Survival of Salmon Export by Norwegian Firms in the International Markets," 62nd Annual Conference, Stuttgart, Germany, September 7-9, 2022 329609, German Association of Agricultural Economists (GEWISOLA).
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    More about this item

    Keywords

    Sunk costs; Trade duration; Survival; Core versus peripheral markets; Sweden; Firm-level data; Discrete-time hazard models; F10; F14;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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