German Export Survival in the First Globalisation

How were trade relations structured in the first globalisation? Previous literature has highlighted the strong activity of the extensive margin during the first globalisation, i.e. that here was substantial entry and exit. However, so far little is known about what happens between market entry and exit. Traditional narratives of the first globalisation relying on the Heckscher-Ohlin factor endowments or the gravity model are mute about these features of the data. In this paper I study the survival margin of international trade and wonder how long trade relationships lasted and what factors mattered for the duration ofexports. Using product-evel export data from 1889 to 1913, I find that the first years of an export were the most hazardous. The median length of an export spell was 2 years, only about 60 per cent survived the first year, and a mere third of exports lasted longer than 3 years. However, once exporters survived the first two years they face less hazard from year to year. I take Rauch and Watson�s (2003) search cost model of trade relationships and derive hypotheses that I test in order shed light on the duration of Germany�s exports. Key to this model is that a fraction of exports serve to learn about market conditions. I quantify this learning, and my findings suggest that search costs as well as reliability turn out to have been important for export survival, and so did prior export experience. In other words, learning to export was a salient feature of Germany�s experience in the first globalisation.