Survival in Export Markets

This paper explores the determinants of firm survival in export markets. Our theoretical framework includes a geometric Brownian motion for firm profitability, market-specific sunk and fixed exporting costs that are common across firms, and firm- and market-specific profitability shifters that are constant over time. We derive the probability of survival upon entry in an export market. We show that this probability increases with the ratio of sunk to fixed costs and is insensitive to the profitability shifters. Also, we show that the survival probability is unaffected by fixed costs if sunk costs are zero. Combining our theoretical results with observed patterns of survival among Argentine exporters, we infer the impact of distance and experience on the magnitude of sunk and fixed costs. In our data set, survival rates upon entry decrease with distance and increase with experience. Hence, we infer that fixed costs increase more with distance than sunk cost while fixed costs fall with experience sufficiently strongly to dominate the fall in sunk costs. These results carry implications on parametrizations of theoretical models of export dynamics and serve as a benchmark to assess structural estimates of fixed and sunk costs.