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Geography and Firm Exports: New Evidence on Sunk Costs

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  • Lawless, Martina

Abstract

This paper presents an extension of the analysis of the geographic dimension of trade, by examining the trading patterns of individual firms. Aggregate data does not tell us if a sector is geographically diversified because there are many exporting firms, each of which specialises in a separate destination, or if the firms themselves are selling their exports in many markets. This analysis is made possible by access to a new survey dataset of Irish firms, which includes detailed information on firm characteristics and on the destinations of their exports over a two-year period. In line with Eaton, Kortum and Kramarz (2004), we find that a large number of firms serve only the domestic market and many exporting firms export to a single foreign market. Although there is little movement of firms into and out of exporting, firms’ involvement in individual export markets is much more dynamic. Over thirty percent of firms change their market coverage, usually by entering or exiting one additional market. This is interpreted as evidence that the bulk of any sunk cost encountered in exporting in incurred during the initial entry to the export market. Subsequent entry to additional markets is made easier by prior export experience, which reduces the sunk cost of extending market coverage.

Suggested Citation

  • Lawless, Martina, 2006. "Geography and Firm Exports: New Evidence on Sunk Costs," MPRA Paper 10006, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:10006
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    File URL: https://mpra.ub.uni-muenchen.de/10006/1/MPRA_paper_10006.pdf
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    References listed on IDEAS

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    1. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting Trade: Firms, Industries, and Export Destinations," American Economic Review, American Economic Association, vol. 94(2), pages 150-154, May.
    2. Frances Ruane & Julie Sutherland, 2005. "Ownership and Export Characteristics of Irish Manufacturing Performance," The Institute for International Integration Studies Discussion Paper Series iiisdp032, IIIS.
    3. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    4. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
    5. Stephen Pavelin & Frank Barry, 2005. "The Single Market and the Geographical Diversification of Leading Firms in the EU," The Economic and Social Review, Economic and Social Studies, vol. 36(1), pages 1-17.
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    Cited by:

    1. Péter Harasztosi, 2016. "Export spillovers in Hungary," Empirical Economics, Springer, vol. 50(3), pages 801-830, May.

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    More about this item

    Keywords

    Firm exports; sunk costs; market concentration;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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