Costs of trade and self-selection into exporting and importing: The case of Turkish manufacturing firms

This paper focuses on self-selection into trade by exporting and importing firms, and on the presence of differential variable and sunk costs between exporters and importers across different categories of imports. The authors use a rich and recent dataset for Turkish manufacturing firms for the period 2003 - 2010. This allows them to provide a comprehensive analysis of firm heterogeneity and the connection between firm-level performance and international trade. They provide evidence on the remarkable heterogeneity across firms where only-importers (importers) perform better than only-exporters (exporters). The authors detect a self-selection effect for both importing and exporting firms with a stronger effect for importers. The results suggest that the nature of sunk costs varies between importing and exporting activities with importers facing higher sunk costs. Tariffs represent a potentially important source of variation in the variable costs of trading. When taking the tariffs faced by firms into account, the authors find that the self-selection effect associated with sunk costs is still present but greatly reduced with a smaller reduction for importers compared to exporters.