Many new exporters give up exporting very shortly, despite substantial entry costs; others shoot up foreign sales and expand to new destinations. We develop a model based on experimentation to rationalize these and other dynamic patterns of exporting firms. We posit that individual export profitability, while initially uncertain, is positively correlated over time and across destinations. This leads to "sequential exporting," where the possibility of profitable expansion at the intensive and extensive margins makes initial entry costs worthwhile despite high failure rates. Firm-level evidence from Argentina's customs, which would be difficult to reconcile with existing models, strongly supports this mechanism. Sequential exporting also has important and novel policy implications: a reduction in trade barriers has delayed effects, while also promoting entry in third markets. This trade externality poses challenges for the quantification of the effects of trade liberalization programs and implies that the consequences of international trade agreements are significantly richer than traditional models suggest. JEL Codes: F10; D21; F13 Keywords: Export dynamics, experimentation, uncertainty, learning, trade liberalization * We thank Costas Arkolakis, David Atkin, Sami Berlinski, Jordi Blanes-i-Vidal, John Bluedorn, Holger Breinlich, Svetlana Demidova, Nic de Roos, Peter Egger, Robert Elliott, Daniel Ferreira, Rodrigo Fuentes, Martin Gervais, Juan Carlos Hallak, James Harrigan, Beata Javorcik, Marc-Andreas Muendler, Peter Neary, Brent Neiman, Dimitra Petropoulou, Horst Raff, Steve Redding, Frédéric Robert-Nicoud, Mark Roberts, Ina Simonovska, Thierry Verdier, Zhihong Yu, and seminar participants at various institutions and conferences for valuable comments and suggestions. We also thank the support of the Chair Jacquemin of the Université Catholique de Louvain in choosing this paper for its annual award at the 2009 European Trade Study Group Meeting. We gratefully acknowledge financial support from the British Academy and the ESRC.
There is an extensive literature that examines the relationship between foreign direct investment (FDI) and the productivity and competitiveness of domestic firms. Using estimation techniques from the productivity spillover literature, this paper tests for the presence of environmental spillovers from foreign firms. On the basis that foreign-owned firms may encourage firms in their extended supply chain to improve their environment-related management practices, evidence for the existence of environmental spillovers should be easier to find than productivity spillovers where firms naturally attempt to minimise intra-industry knowledge leakage. In this paper we show that, first, foreign-owned firms are more likely to implement environmental management systems (EMS) and, second, that the presence of foreign-owned firms in those sectors that a firm supplies can encourage good environmental practice. This is especially true if a firm is foreign, has high absorptive capacity, and operates in the presence of formal and informal networks. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.
This paper explores the determinants of firms' survival in export markets. In our theoretical framework, firm profitability is characterized by a general parameter that follows a geometric Brownian motion process and a set of market specific components that are fixed over time. Exporting involves sunk and fixed costs, which vary across destinations but are the same across firms. We derive the probability of survival upon entry in a given market. This probability is common to all firms despite their market specific profitability fixed component. Hence, export survival only depends on the magnitude of sunk and fixed costs. The predictions on their effects are opposite: the probability of survival increases with the sunk cost and decreases with the fixed cost, but only if sunk costs are positive. We test these predictions using Argentine customs data. We use distance and export experience as proxies for both fixed and sunk costs. The probability of survival decreases with distance and is higher for experienced firms. These results indicate that fixed costs prevail over sunk costs to explain cross-country variation in survival probabilities and variation in these probabilities between experienced and inexperienced firms.JEL codes: F10, F12, F14
We study the effect of decentralization on corruption in a political agency model from the perspective of a region. In a model where corruption opportunities are lower under centralization at each period of time, decentralization makes easier for citizens to detect corrupt incumbents. As a consequence, the relationship between fiscal decentralization and corruption is conditional on political competition: decentralization is associated with lower (higher) levels of corruption for sufficiently high (low) levels of political competition. We test this prediction and find it is empirically supported. Also, we show how the preferences of voters and politicians about fiscal decentralization can diverge in situations where political competition is weak. JEL-Classification: H11, D72, D73, P16
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