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Exporter Survival with Uncertainty and Experimentation

Author

Listed:
  • Sebastián Fanelli

    (CEMFI)

  • Juan Carlos Hallak

    (UBA-CONICET)

  • Yin Yongkun

    (Shandong University)

Abstract

Two facts distinctively separate exporter dynamics from firm dynamics. One is the strikingly low survival rate of new entrants into export markets. The second is that new entrants survive less than re-entrants. We argue that these two facts are critical to discipline exporter dynamics models because many sources of firm heterogeneity (e.g. fixed costs) do not affect survival rates when firms time their entry decision optimally. We extend a standard exporter dynamics model by positing that firms experiment to resolve an uncertain component in foreign-market profitability. We estimate the model using customs data from Peru. Despite its parsimony, having only four relevant parameters, the model matches the survival profile of entrants and re-entrants. It is also sufficiently rich to deliver predictions about many exporter dynamics facts highlighted in the literature. Finally, we exploit variation across products and markets to provide additional evidence supporting the model’s experimentation mechanism.

Suggested Citation

  • Sebastián Fanelli & Juan Carlos Hallak & Yin Yongkun, 2025. "Exporter Survival with Uncertainty and Experimentation," Working Papers 354, Red Nacional de Investigadores en Economía (RedNIE).
  • Handle: RePEc:aoz:wpaper:354
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/354.pdf
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    References listed on IDEAS

    as
    1. Li, Shengyu, 2018. "A structural model of productivity, uncertain demand, and export dynamics," Journal of International Economics, Elsevier, vol. 115(C), pages 1-15.
    2. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2011. "An Anatomy of International Trade: Evidence From French Firms," Econometrica, Econometric Society, vol. 79(5), pages 1453-1498, September.
    3. Beckstead, Desmond & Baldwin, John R. & Girard, Andree, 2002. "The Importance of Entry to Canadian Manufacturing with an Appendix on Measurement Issues," Analytical Studies Branch Research Paper Series 2002189e, Statistics Canada, Analytical Studies Branch.
    4. Timoshenko, Olga A., 2015. "Learning versus sunk costs explanations of export persistence," European Economic Review, Elsevier, vol. 79(C), pages 113-128.
    5. Marcela Eslava & James Tybout & David Jinkins & C. Krizan & Jonathan Eaton, 2015. "A Search and Learning Model of Export Dynamics," 2015 Meeting Papers 1535, Society for Economic Dynamics.
    6. Cristina Mitaritonna & Zhanar Akhmetova, 2013. "A Model of Firm Experimentation under Demand Uncertainty: an Application to Multi-Destination Exporters," Working Papers 2013-10, CEPII research center.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Exporter dynamics; uncertainty; experimentation; foreign demand; geometric Brownian motion.;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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