New Exporter Dynamics

Abstract

We document that new exporters initially export small amounts, grow gradually, and are most likely to exit the export market in their first few years. We find that the standard sunk-cost model cannot replicate these new exporter dynamics: New exporters grow too large too quickly and live too long. In a modified sunk-cost model that can account for these facts, the entry costs needed to match the data are three times smaller than in the sunk-cost model. Dynamic models with richer plant-level heterogeneity are needed. * Manuscript

The Life-Cycle Dynamics of Exporters and Multinational Firms

“…Early work by Baldwin (1989), Baldwin and Krugman (1989), and Dixit (1989), followed by more recent work by Ghironi and Melitz (2005), Das et al (2007), Alessandria and Choi (2007), and Impullitti et al (2013), point to the importance of the hysteresis created by sunk investments for understanding the effects of temporary and permanent shocks on aggregate trade flows and exchange rate movements. Using data for Colombia, Ruhl and Willis (2017) document facts similar to ours regarding the life-cycle dynamics of exporters, and show that matching the observed new exporters' sales growth entails lower estimates of the sunk entry cost than the ones in the previous literature. All of this literature, in contrast to a recent literature that uses static quantitative models, has been silent on the role played by MNEs.…”

“…Both literatures have resorted to demand frictions to slow down firm growth (see Ruhl and Willis (2017) for exporters and Foster et al (2016) for domestic firms). 4 We show that it is important to consider the full set of options available to firms to better account for their life-cycle dynamics: Giving exporters the possibility of becoming an MNE, a first-order feature of the data, slows down their life-cycle growth.…”

Firm‐level Investment and Export Dynamics*

“…Importantly, firms are still subject to increasing marginal costs and that capital is fixed over time (“Model 4”). These restrictions create an environment similar to those in Ruhl and Willis (), with the exception that we allow firms to receive firm‐specific export demand shocks. Last, we repeat this exercise assuming that the firm faces a constant marginal cost function in the short run as in Das et al.…”

“…It is well known that a large percentage of new exporters exit after one year of exporting; in our data, 47% of new plastics exporters and 38% of new fabricated metals exit after only one year. As noted by Ruhl and Willis (), standard heterogeneous firm trade models are often characterized by large sunk entry costs. Due to this feature of these models, too many new entrants are generally predicted to survive after the first period.…”

Exporter Dynamics and Partial-Year Effects

“…Their focus on the duration of export spells it is not directly affected by partial-year effects. Ruhl and Willis (2014) examine exporter dynamics using the export share of total sales. They acknowledge the possibility of that partial year bias may lower this ratio but argue that the persistence of lower export shares for several years is evidence that new exporters are growing more rapidly during their first years in the market.…”