Productivity growth and new market entry

In this paper we examine the entry of new countries and products into world trade flows. This is manifest in our data sample by a growth in exporter–importer-product combinations from about 430 thousand in 1995 to almost 620 thousand in 2005. Most of this growth has occurred because more and more developing or emerging market countries are entering the market as exporters. To study this growth in trade at the extensive margin, we develop a firm level model based on the work of Helpman et al. (Q J Econ 123(2):441–487, 2008 ) of the decision to enter the export market. Using data from 129 countries and 144 industrial sectors, we then estimate this model for the years 1995 and 2005. We report evidence that rising firm-level productivity levels in our sample countries, either in overcoming the costs of direct exports or of engaging trade intermediates, provides the best explanation for the observed pattern of the growth in exporter–importer-product pairs. Copyright Kiel Institute 2015