Learning and the Dynamics of Exporting: Theory and Evidence from French Firms
Romain Aeberhardt, Ines Buono and Harald Fadinger
University of Vienna
We develop and test a model where exporting requires to find a local partner in each market. Initially, the reliability of the partner is unknown but exporters learn it as they acquire experience. As a consequence, export relations start small and grow if the relationship is successful. We show that such a model generates state dependence of exporting behavior much like a model that involves a sunk fixed cost of exporting. The intuition is that having a good partner has a value for exporters and this generates persistence of exporting behavior. In addition - and differently from a standard sunk cost model - the model predicts more persistence of exporting behavior in markets with better legal institutions. We test these and other predictions on French firm level export data that include information on the destinations of individual firms' exports and find strong evidence in favor of our model.
Keywords: Heterogeneous firms, dynamics of exporting, informational frictions, institutions
Countries covered: France
Research Areas: International Trade, Competitiveness and FDI