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How to Combine High Sunk Costs of Exporting and Low Export Survival

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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, and that the trade survival literature also includes data on decisions to stay in or exit peripheral markets.

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  • Gullstrand, Joakim & Persson, Maria, 2012. "How to Combine High Sunk Costs of Exporting and Low Export Survival," Working Papers 2012:32, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2012_032
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    3. Xuqian Hu & Canfei He, 2020. "Nontariff measures, trade deflection, and market expansion of exporters in China," Growth and Change, Wiley Blackwell, vol. 51(3), pages 932-953, September.
    4. Ingo Geishecker & Philipp J. H. Schröder & Allan Srensen, 2019. "One-off export events," Canadian Journal of Economics, Canadian Economics Association, vol. 52(1), pages 93-131, February.
    5. Hayakawa, Kazunobu & Kimura, Fukunari & Laksanapanyakul, Nuttawut, 2016. "Firm-level trade creation and diversion of regional trade agreements in Thailand," IDE Discussion Papers 621, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    6. HAYAKAWA Kazunobu & MATSUURA Toshiyuki, 2017. "Overseas Production Expansion and Domestic Transaction Networks," Discussion papers 17085, Research Institute of Economy, Trade and Industry (RIETI).
    7. Bandick, Roger, 2019. "Global sourcing, firm size and export survival," Economics Discussion Papers 2019-62, Kiel Institute for the World Economy (IfW).
    8. 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.
    9. Heiko Dreyer & Svetlana Fedoseeva, 2016. "Gravity Models and Asymmetric Exchange Rate Effects: Insights from German Beer Exports," Agribusiness, John Wiley & Sons, Ltd., vol. 32(2), pages 289-295, April.
    10. 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.
    11. M. Padmaja & Subash Sasidharan, 2021. "Financing constraints and exports: evidence from India," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(1), pages 118-145, January.
    12. 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.
    13. Pişkin, Erhan, 2017. "Türkiye İhracatının Ölüm-Kalım Meselesi [The Matter of Survival for Turkish Exports]," MPRA Paper 81459, University Library of Munich, Germany.
    14. Tomohiko Inui & Keiko Ito & Daisuke Miyakawa, 2017. "Export Experience, Product Differentiation and Firm Survival in Export Markets," The Japanese Economic Review, Springer, vol. 68(2), pages 217-231, June.
    15. Bojnec, Štefan & Fertő, Imre, 2018. "Economic Crisis and the Fragility of Comparative Advantage in European Agriculture," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 67(3), September.
    16. Eliane Choquette, 2019. "Import-based market experience and firms’ exit from export markets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(3), pages 423-449, April.

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    More about this item

    Keywords

    Sunk Costs; Trade Duration; Survival; Core v. Peripheral Markets; Sweden; Firm-Level Data; Discrete-Time Hazard Models;
    All these keywords.

    JEL classification:

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

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