Market Entry Costs, Producer Heterogeneity, and Export Dynamics

Abstract

As the exchange rate, foreign demand, and production costs evolve, domestic producers are continually faced with two choices: whether to be an exporter and, if so, how much to export. We develop a dynamic structural model of export supply that characterizes these two decisions. The model embodies plant-level heterogeneity in export profits, uncertainty about the determinants of future profits, and market entry costs for new exporters. Using a Bayesian Monte Carlo Markov chain estimator, we fit this model to plant-level panel data on three Colombian manufacturing industries. We obtain profit function and sunk entry cost coefficients, and use them to simulate export responses to shifts in the exchange-rate process and several types of export subsidies. In each case, the aggregate export response depends on entry costs, expectations about the exchange rate process, prior exporting experience, and producer heterogeneity. Export revenue subsidies are far more effective at stimulating exports than policies that subsidize entry costs. Copyright The Econometric Society 2007.

Early internationalization patterns and export market persistence: a pseudo-panel data analysis

“…An excessive emphasis on the part of entrepreneurship policy on rapid and intense internationalization of newly created firms may actually be counter-productive from an economic and entrepreneurial point of view (Das et al 2007). For entrepreneurs, being international from birth, especially at high intensity levels, may take them past their capability frontier and over-stretch the newly created firms' organizational capacity.…”

“…In fact, rapid international growth may be destabilizing to new firms as their limited resources and capabilities may be overly stretched (Chetty and Campbell-Hunt 2003;Sapienza et al 2006). As such, when firms 'over'-internationalize early they are even more likely to be handicapped by the lack of experience as well as capabilities that are critical for operating in international markets (Das et al 2007). Because capabilities and the social capital to operate in an international market take time to develop, we suggest new firms that decide to follow an early internationalization pattern should do so with a low export intensity level.…”

“…For instance, heavy external finance of international operations often means that unsuccessful exporters will consequently face financial constraints for domestic operations (Smolarski and Kut 2011). This is compounded by the fact that small and novice exporters tend to gain smaller export revenues (Rauch and Watson 2003), which rarely cover the costs of initiating international trade operations in the short-term (Das et al 2007). Since the low export persistence of new firms and short international venture duration has been documented (Eaton et al 2007;Sapienza et al 2006), it is likely that internationalization results in losses for many exporters (Mora 2015).…”

Liquidity Constraints and Firm's Export Activity

“…Chaney (2005) introduces liquidity constraints into a model of international trade with heterogeneous firms (Melitz, 2003); then, liquidity becomes a second source of heterogeneity across firms 3 . In a recent paper, Das et al (2007) show the importance of sunk costs for exports. They calculate an average fixed entry cost of around $400.000 for Mexican exporters, even if they claim that it can be lower in reality; in general, the paper demonstrates that entry costs are an important barrier.…”

“…Based on the lower portion of Table B.3 it is possible to observe that a few firms changed their answers from one survey to the other. 16 For example, firms are members of group 0 if all dummies are equal to zero, or in other words, if all of the firms indices fall below the threshold .…”