The Role of Extensive and Intensive Margins and Export Growth

Abstract

We investigate and compare countries' export growth based on their performance at the extensive and intensive export margins. Our empirical approach is motivated by an extension to the Melitz (2003) model of heterogeneous firms in which exporters are subject to a one-time sunk cost and also a per-period fixed cost. With imperfect information a firm may enter export markets but shortly exit when it learns its per-period fixed costs. We apply this insight to disaggregated export data and confirm that indeed most export relationships are very short lived. We then show that the survival issue is a significant factor in explaining differences in long run export performance. We find that developing countries would experience significantly higher export growth if they were able to improve their performance with respect to the two key components of the intensive margin: survival and deepening.

Exploring the duration of EU imports

“…In other words, if we do find short trade spells using relatively aggregated data, we can be more confident that this mirrors an economically significant phenomenon. This follows Besedeš and Prusa (2007) who use the same type of data in their analysis.…”

“…The conclusions are that exporter characteristics (such as GDP and language), product characteristics (such as unit values) and market characteristics (such as the import value, and market share) affect the duration of German imports. Besedeš and Prusa (2007) focus on the extensive and intensive margins of trade. Using data on manufacturing exports at the 4-digit SITC (Revision 1) level from 46 countries to 181 importers for 1975-2003, they decompose export growth into three parts: establishing trade with new partners and markets; having relationships survive or persist; and deepening existing relationships.…”

“…7 By studying a longer time period than any previous paper in the literature we are able to both obtain more observations and investigate whether trade dynamics change over time. As it has been argued by Besedeš and Prusa (2007) that the data quality might be lower for the earlier years of our period under scrutiny, we therefore also analyze different sub-periods with later starting dates to ensure that our results do not depend on the specific time period chosen. We note, however, that using mirror import data reported by EU countries will very likely lead to far fewer data problems than employing export data reported by a large range of countries (including many developing countries), as done by Besedeš and Prusa (2007).…”

Economies of Scale and the Size of Exporters

“…Besedes and Prusa (2011) argue that new exporting relationships have little impact on long-run export growth because they tend to be very short-lived. Arkolakis et al (2008) document a sizable increase in variety in Costa Rica from 1986 to 1992.…”

A microscopic study of the fitness-dependent topology of the world trade network

“…However, since there are -depending on the definition-approximately 195 countries in the world to date, the growth of the network cannot be sustained. A dynamic perspective on the world trade network, by investigating the duration and strength of individual connections and also the relationship between the development status of a country and its ability to establish long-lasting trade relationships has been discussed in [4,5]. It has been shown in [6,7], that the static fitness model is an adequate model to describe the structure of the world trade network for several years, not just on the level of node degree distributions, but up to higher order statistics, such as the average nearest neighbor degree.…”