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Heterogeneity and Uncertainty in the Dynamics of Firm Selection into Foreign Markets


  • Mehmet Fatih Ulu


Firm-level data indicates a positive relationship between a firm�s revenues from a market and the number of markets penetrated by that firm, and previous presence in that market. After studying the role of different types of firm and market-specific shocks in firms� selection decisions, I quantify an entry-cost-reducing effect of previous presence in a market, and increasing returns to being in more markets. I find that being in an additional market increases the demand in other markets between 1% and 3% across different sectors. Additionally, a variance decomposition between firm and market-specific heterogeneity and idiosyncratic uncertainty in firms� selection problem indicates that 1) firm-specific heterogeneity explains more of the total residual variation in revenues from foreign markets as opposed to idiosyncratic variation in technology intensive indus- tries than less technology intensive ones and 2) the relative importance of idiosyncratic components diminishes as the level of per capita income of a destination market increases.

Suggested Citation

  • Mehmet Fatih Ulu, 2014. "Heterogeneity and Uncertainty in the Dynamics of Firm Selection into Foreign Markets," Working Papers 1401, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1401

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    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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