Learning versus sunk costs explanations of export persistence

Abstract

This paper explores the role of sunk costs versus learning in explaining persistence in exporting. Multiple studies attributed such persistence to sunk market-entry costs. This paper shows that similar patterns of exporting are also consistent with a learning mechanism and finds a strong empirical support for such a mechanism in the context of Colombian plant-level data. Second, the paper empirically discriminates between the two competing theories, and finds that once learning is controlled for, the role of sunk costs in generating export persistence is at most forty percent of what is currently estimated in the literature. Finally, while in differentiated-products industries export persistence arises primarily due to learning, in the homogeneous-products industries such persistence arises primarily due to the sunk-cost mechanism.

Persistence in exporting: Cumulative and punctuated learning effects

“…However, learning effects can play a role not only in a firm's performance but also in terms of its export persistence. Timoshenko (2015) shows formally that the length of recent export experience induces firms to continue exporting, and thus naturally leads to persistence in exporting. Put simply, experienced exporters have learned more from operating recently in foreign markets than less experienced exporters, and so the profitability derived from a given market typically rises with the length of exporting experience.…”

“…Our analysis has implications both for theory and practice. First, we distinguish conceptually between different forms of learning by exporting, crucially differentiating between three forms of export experience from which learning can occur: first, the firm's current 'within-spell' exporting experience, as analysed by Timoshenko (2015); second, learning arising from the firm's cumulative export experience, measured by the number of years of previous export experience at the onset of the current export spell; and finally the potentially detrimental effect of punctuated learning, where a firm's cumulative export experience is split into a number of discrete episodes. Second, we analyse how firm's reactions to demand changes, both objective and subjective, affect their export persistence patterns, and investigate whether large and small enterprises differ systematically in the way in which they react to demand changes and in the way in which these reactions affect export persistence.…”

Dinámica de Exportaciones de Firmas y Tipo de Cambio: un Análisis Cuantitativo

“…Aeberhardt et al (2014) y Araujo et al (2016) exploran el rol de cumplimiento de contratos y el aprendizaje sobre la confiabilidad de socios comerciales. Timoshenko (2015) y Cebreros (2016) atribuyen la conducta dinámica a un proceso de aprendizaje de las empresas en mercados extranjeros, Arkolakis 2015…”

Do Employee Spinoffs Learn Markets From Their Parents? Evidence From International Trade

“…Timoshenko (2015b) finds that the tendency for exporting firms to add or drop products decreases with consecutive previous years of exporting, indicating that they are learning which of their products appeal to foreign consumers. Timoshenko (2015a) finds that both current probability of exporting and export sales increase with number of consecutive previous years of exporting, a proxy for learning.…”