IDEAS home Printed from https://ideas.repec.org/p/hhs/cesisp/0081.html
   My bibliography  Save this paper

Entry costs and adjustments on the extensive margin - an analysis of how familiarity breeds exports

Author

Listed:
  • Andersson, Martin

    () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

Abstract

Fixed entry costs play an important role to explain the heterogeneity among exporters in terms of the geographical scope of their export activities. Yet, the existing literature has paid little attention to the nature and variation of such costs across different markets. This paper proposes a link between familiarity and fixed entry costs, such that (all else equal) the cost of entering a familiar market is lower than entering an unfamiliar one. A testable implication of this is that familiarity should primarily affect the extensive margin (number of exporters) of exports. This hypothesis is tested by estimating a gravity equation on a panel that describes Swedish firms’ exports to 150 destination countries over a period of seven years. The results are consistent with the hypothesis and show that the effect of familiarity on the volume of aggregate exports is primarily due to adjustments on the extensive margin. Adjustments on the extensive margin are large and have a significant impact on aggregate export volumes. The findings do not only help to clarify the nature and variation of fixed entry costs across destination markets: they also suggest a precise mechanism through which familiarity affects trade.

Suggested Citation

  • Andersson, Martin, 2007. "Entry costs and adjustments on the extensive margin - an analysis of how familiarity breeds exports," Working Paper Series in Economics and Institutions of Innovation 81, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  • Handle: RePEc:hhs:cesisp:0081
    as

    Download full text from publisher

    File URL: https://static.sys.kth.se/itm/wp/cesis/cesiswp81.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richard Frensch, 2010. "Trade Liberalization and Import Margins," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(3), pages 4-22, May.
    2. Francesco Serti & Chiara Tomasi, 2008. "Firm Heterogeneity: do destinations of exports and origins of imports matter?," LEM Papers Series 2008/14, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    3. Maria Persson, 2013. "Trade facilitation and the extensive margin," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 22(5), pages 658-693, August.
    4. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-1721, September.
    5. Christodoulopoulou, Styliani, 2010. "THE Effects of Multilateral Trade Liberalization on the Extensive and the Intensive Margins of Trade," MPRA Paper 29169, University Library of Munich, Germany.
    6. Martin Andersson & Hans Lööf & Sara Johansson, 2008. "Productivity and International Trade: Firm Level Evidence from a Small Open Economy," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 144(4), pages 774-801, December.
    7. Balazs Murakozy & Gabor Bekes, 2009. "Temporary Trade," IEHAS Discussion Papers 0909, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    8. Paulo Bastos & Joana Silva, "undated". "Cultural Links, Firm Heterogeneity and the Intensive and Extensive Margins of International Trade," Discussion Papers 08/30, University of Nottingham, GEP.
    9. Bastos, Paulo & Silva, Joana, 2012. "Networks, firms, and trade," Journal of International Economics, Elsevier, vol. 87(2), pages 352-364.
    10. Békés, Gábor & Muraközy, Balázs, 2012. "Temporary trade and heterogeneous firms," Journal of International Economics, Elsevier, vol. 87(2), pages 232-246.
    11. repec:spr:weltar:v:144:y:2008:i:4:p:596-635 is not listed on IDEAS
    12. Francesco Serti & Chiara Tomasi, 2009. "Self-selection along different export and import markets," LEM Papers Series 2009/18, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    13. Richard Frensch, 2010. "Trade Liberalization and Import Margins," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 46(3), pages 4-22, May.
    14. Persson, Maria, 2008. "Trade Facilitation and the Extensive and Intensive Margins of Trade," Working Papers 2008:13, Lund University, Department of Economics.

    More about this item

    Keywords

    international trade; fixed entry costs; transaction costs; gravity models; extensive margin; intensive margin; heterogeneous firms;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:cesisp:0081. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vardan Hovsepyan). General contact details of provider: http://edirc.repec.org/data/cekthse.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.