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Decomposing Firm-level Sales Variation

  • Jakob R. Munch

    (Department of Economics, University of Copenhagen)

  • Daniel X.

    (Department of Economics, University of Copenhagen)

We measure the contribution of firm-specific effects to overall sales variation within a destination and find it remarkably low. Our empirical decomposition is structurally motivated by a heterogeneity model of exporting involving destination-specific, firm-specific, and firm-destination-specific latent effects with incidental truncation. We use a highly detailed dataset with exports by products and destinations for all Danish manufacturing firms. We find the contribution of firm-specific heterogeneity to within-destination sales variation varies greatly across HS6 products, and that for the median product it drives 31% of the sales variation. When we remove first-time exports from our sample, the median value increases to 40%, implying that firm-destination-specific effects are most important the first year. We conclude that while firm-specific productivity can account for some of the variation, the majority is explained by firm-destination-specific heterogeneity sources such as firm-destination-specific demand.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 2009-05.

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Length: 22 pages
Date of creation: Aug 2008
Date of revision: Jun 2009
Handle: RePEc:kud:epruwp:09-05
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