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Foreign Customer Accumulation and Export Dynamics

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  • Tjaden, Volker

Abstract

I present a dynamic fixed cost model of export participation extended by a capital theoretic concept of the customer stock. Plants that want to start exporting have to invest into a market specific factor which serves as input into a decreasing returns to scale technology generating sales demand. Customer capital, like phyical capital, depreciates over time and its accumulation is subject to adjustment costs. It allows the model to reproduce the empirical fact that new exporters show above average revenue growth rates and a declining exit hazard in the years after entry. I structurally estimate the model on a rich panel data set of German manufacturing plants between 1995 and 2008. During the observed time span, plants in the sample saw a strong increase in export activity which provides a suitable case study for the predictive power of the model. Unlike a pure fixed cost version, the model correctly forecasts a steep rise in exports after 2003. It is also able to reconcile a strong export reaction to trade liberalizations with a low elasticity of aggregate exports to exchange rate movements. Customer capital accumulation therefore offers a potential resolution to the elasticity puzzle in international economics.

Suggested Citation

  • Tjaden, Volker, 2013. "Foreign Customer Accumulation and Export Dynamics," Bonn Econ Discussion Papers 06/2013, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:062013
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    More about this item

    Keywords

    customers as capital; firm entry; firm heterogeneity; export dynamics; sunk costs; international business cycles;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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