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Learning, Incomplete Contracts and Ecport Dynamics: Theory and Evidence from French Firms

We consider a model where exporting requires finding a local partner in each market. Contracts are incomplete and exporters must learn the reliability of their partners through experience. In the model, export behavior is state-dependent due to matching frictions, although there are no sunk costs. Better legal institutions alleviate contracting frictions especially in sectors with large contracting problems. Thus, measures of legal quality have a greater positive impact on state dependence and reduce hazard rates by more in those sectors that are more exposed to hold-up problems. Moreover, hazard rates decline with relation age, as unreliable partners are weeded out. We find strong evidence in favor of the model's predictions when testing them with a French dataset which includes information on firm-level exports by destination country.

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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 1006.

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Date of creation: Mar 2009
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Handle: RePEc:vie:viennp:1006
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