Product switching in a model of learning

Abstract

New exporters add and drop products with much greater frequency than old exporters. This paper rationalizes this behavior with a model of demand learning. In the model, an exporter's profitability on the demand side is determined by a timeinvariant firm-destination appeal index, and transient firm-destination-year preference shocks. New exporters must learn about their appeal index in the presence of these shocks, and respond to fluctuations in demand by adding and dropping products more frequently than older exporters because they have less information about their attractiveness to consumers. Calibrated to match cross-section distribution of sales and scope, the model quantitatively accounts for the contribution of the extensive margins to aggregate Brazilian exports. The model predicts that in response to a decline in trade costs existing exporters add new products and new exporters enter a destination. Counterfactual implies that the contribution of product adding to export growth resulting from trade liberalization is three times larger than the contribution of exporter entry.

Exporter Dynamics, Firm Size and Growth, and Partial Year Effects

“…They emphasize the facts of Eaton, Eslava, Jinkins, Krizan, and Tybout (2012) for Colombia and Eaton, Kortum, and Kramarz (2011) for France -many new exporters ship very small quantities and surviving exporters expand rapidly. Timoshenko (2013) focuses on a different dimension of exporter behavior, the margin of product switching. A model of learning by exporters in new markets is motivated by the fact that Brazilian exporters in their second year in the market have disproportionately greater shares of sales from new products and greater shares of new products in their product mix.…”

Out of the Border Labyrinth: An Assessment of Trade Facilitation Initiatives in Latin America and the Caribbean

“…This would translate into a lower size threshold above which firms can export and, accordingly, in lower initial firm export levels. 24 This is confirmed by estimation results reported in Figure 4.12, which indicate that initial pure Exporta Fácil exporters actually enter smaller than their regular peers (and also relative to firms that combine regular and Exporta Fácil sales), both at the firm-level and at the firm-product-destination level and even within narrowly defined 21 See Artopolous, Friel, and Hallak (2013), Johanson andVahlne (1997), andTimoshenko (2015). 22 Albornoz, Calvo Pardo, Corcos, and Ornelas (2012) show how experimentation and thereby learning can lead to sequentiality in firms' exports.…”

Posts as Trade Facilitators

“…New-to-export firms must generally acquire export-specific knowledge and particularly learn the appeal of their products in specific destination (see Johanson and Vahlne, 1997;Artopolous et al, 2013;and Timoshenko, 2015a). By reducing the entry barriers to these markets and thereby making it easier to develop export capabilities and add and drop products, Exporta Fácil can facilitate experimentation and such export learning.…”