A theory of entry into and exit from export markets

Trade Liberalization: Export-Market Participation, Productivity Growth and Innovation

A complex interplay of socio-economic, product attributes, market forces, and institutional factors influences the participation of rice traders in export markets. Despite many studies on rice traders' export market participation, the challenge of rice traders’ engagement in rice trade and export activities, particularly in developing countries, is context-specific. This paper analyzed specific socio-economic and institutional factors affecting rice traders’ decisions regarding export markets participation in Tanzania. Utilizing survey data from 150 randomly selected rice traders across eight distinct trading zones, the study employs binary regression analysis to examine these factors. Results indicate that gender, years of experience in rice trading, capital availability, and access to market information significantly impact traders' decisions to enter export markets (P<0.05). The findings highlight that inadequate market information and insufficient capital are primary barriers to participation. The study concludes with a recommendation for government intervention to enhance access to market information and credit facilities, thereby boosting rice traders' involvement in export markets to meet the demand in neighboring countries. Also, the government should embrace a multi-stakeholder innovation platform for building and strengthening partnerships and collaborative learning among both public and private actors to improve marketing decisions among rice traders for attaining the Sustainable Development goals in the country.

Dynamics of Export Market Entry and Exit

Rapidly growing trade literature has highlighted the importance of firm-level analysis. Building on recent empirical results, this paper examines export behaviour of Turkish manufacturing firms for the period of 1989–2010 from survival analysis perspective. This contributes to the existing empirical literature using Turkish data. Moreover, it provides additional new insight about the exporting behaviour of the firms since this is the first and unique application for the Turkish manufacturing sector. Using duration models, we found that export market entry and exit dynamics differ considerably for the Turkish manufacturing firms. Duration to become exporter is found to be shortening with size, productivity, financing and capital intensity. Domestic market profitability, on the other hand, is found to decrease export incentive which is characterized as risk-averse properties of the Turkish firms. Export market survival is found to depend mainly on size, productivity, external financing and quality production. In order to increase export market survival probability and duration, export starters have to invest for increasing their quality competition power.

This paper analyzes the persistence of firms’ exporting behavior in a panel of German manufacturing firms using dynamic binary choice models. We distinguish between true and spurious state dependence in exports and apply fixed effects methods that allow us to verify the robustness of our results to critical assumptions on firms’ initial export status. We find robust evidence of state dependence in the current export status of firms. We also document an important role of unobserved permanent firm heterogeneity (spurious state dependence) and quantify the relative importance of different export determinants. Our results, which are consistent with the findings of previous studies on firms in developing countries and in the United States, show the presence of important sunk costs in export market entry and a depreciation of knowledge and experience in export markets.

A positive correlation between productivity and export market participation has been well documented in producer micro data. Recent empirical studies and theoretical analyses have emphasized that this may reflect the producer's other investment activities, particularly investments in R&D or new technology, that both raise productivity and increase the payoff to exporting. In this paper we develop a dynamic structural model of a producer's decision to invest in R&D and participate in the export market. The investment decisions depend on the expected future profitability and the fixed and sunk costs incurred with each activity. We estimate the model using plant-level data from the Taiwanese electronics industry and find a complex set of interactions between R&D, exporting, and productivity. The self-selection of high productivity plants is the dominant channel driving participation in the export market and R&D investment. Both R&D and exporting have a positive direct effect on the plant's future productivity which reinforces the selection effect. When modeled as discrete decisions, the productivity effect of R&D is larger, but, because of its higher cost, is undertaken by fewer plants than exporting. The impact of each activity on the net returns to the other are quantitatively unimportant. In model simulations, the endogenous choice of R&D and exporting generates average productivity that is 22.0 percent higher after 10 years than an environment where productivity evolution is not affected by plant investments.

This article analyses the choices made by individual firms to enter the export market. A probit specification tests the probability of exporting in the current period given past exporting experience, controlling for the firm's initial export status. This article uses a two-step estimation procedure suggested by Orme (1997, 2001), which controls for the influence of initial conditions. Significant evidence of sunk costs was found, based on the observed persistence of export activity and the explanatory power of previous exporting experience on current export status. A measure of sector tradability was also used and as expected firms in more easily traded sectors were most likely to be exporters. However, little evidence of spillovers was found in determining export market participation.

Trade and productivity: Self-selection or learning-by-exporting in India

Theoretical models of market entry imply that sunk costs are an important factor in the decision to export. Following Helpman, Melitz, and Rubinstein (2008), we develop a simple model of foreign market participation and use a Bayesian method to estimate the resulting dynamic discrete-choice model with lagged dependent variable. Employing a balanced panel data that follows 81 trading partners for 30 years from 1971 to 2000, we estimate our model and compute the marginal effect of sunk costs on the likelihood of export market participation. We find that such costs are economically and statistically important for trade in all of the six major agricultural commodities (Cereals, Dairy, Fish, Meat, Vegetables and Fruits, and Sugar), for agricultural producers in both developed and developing countries. We also find evidence suggesting that, in general, market access for both developed and developing exporters had improved in the years following the Uruguay round of trade negotiations (1995–2000).

This paper highlights the relationship between foreign exchange rate fluctuations and firms’ export market dynamics using a Chinese firm-level production data and a firm-level trade data over the period of 2000–2006. This study adopts a discrete-time survival model in our empirical investigation and further executes several extensions and robustness checks to the baseline results. The main results of the paper can be summarized as follows: First, an exchange rate appreciation increases the likelihood of export market exit and decreases the probability of export market entry. Second, high productivity firms are less likely to exit from export markets and more likely to enter export markets in the period of exchange rate appreciation. Third, exchange rate appreciation decreases the likelihood of export market entering and increases the likelihood of export market exiting more for private-owned firms, young firms and non-eastern firms. Finally, other sources of heterogeneity, such as extensive margins, import demand elasticity, different destinations, U.S. dollar peg, and the liberalization of trading rights is also important to the effects of exchange rate changes.

This study develops new insights into the spillover effects of foreign multinational enterprises (MNEs) on local firms’ export market entry, using the case of Vietnam—a notable global manufacturing hub located in Southeast Asia. The empirical analysis is based on a disaggregated firm‐level panel dataset of 25,032 observations of Vietnamese food processing firms during the period 2011–2016. The food processing industry is an essential part of the country's thriving manufacturing sector, with enormous potential for exports. The random‐effects Probit estimation results suggest that the presence of foreign MNEs significantly raises the likelihood that private local firms become exporters and thereby start integrating into global value chains. Further regressions reveal that foreign presence is also linked to higher export intensity among domestic firms, and that the magnitude of the estimated spillover effects is conditional on the specific measures of foreign MNE presence, the ownership structure in local industry, and the size of local firms. The findings highlight the considerable potential for foreign MNEs to influence local firms’ export prospects and validate the policy efforts to attract foreign direct investment inflows to the examined industry.

Export Dynamics in Small Open Economies: Indigenous Irish Manufacturing Exports, 1985-2003

Market access liberalization has influenced product-specific growth of world exports and contributed to the shift in the structure of world exports of manufactures towards electrical and electronic goods (including parts and components), goods that require high R&D expenditures, and labour-intensive products such as clothing. Multilateral trade liberalization has strongly improved market access conditions for manufactures and partly explains why manufactures have experienced particularly strong growth in exports. The increased importance of vertical international production sharing and the associated preferential trading arrangements between geographically close countries with significantly different wage rates have been a key determinant of differences in export-value growth across individual manufactured products, as well as of the distribution of market shares for some of these products among developing countries. Projections based on a standard trade model suggest that moving to full trade liberalization would lead to an increase in the share of agricultural products in total world trade by almost two percentage points and give greater weight to the textile, clothing and automotive sectors within manufactured exports.

The Quality-Complementarity Hypothesis: Theory and Evidence from Colombia

The manufacturing sector in Taiwan has a market structure composed of large numbers of small firms, a heavy focus on less capital-intensive industries, and a dense network of firms specializing in subcontracting and trading services. It has been argued that these features lower the start-up costs of new manufacturing firms. Recent theoretical models of market evolution emphasize that low sunk entry and exit costs act to speed firm turnover by facilitating entry and increasing the pressure on inefficient firms to exit. As a result, low cost entry and exit may contribute to aggregate productivity improvements by facilitating the rapid transfer of resources from less to more efficient producers within an industry. Using comprehensive firm-level panel data from the Taiwanese Census of Manufactures for 1981, 1986, and 1991, we measure differences in total factor productivity among entering, exiting, and continuing firms, and quantify the contribution of firm turnover to industry productivity improvements. We find significant differences in productivity across manufacturing firms that are reflected in turnover patterns in both the domestic and export market. Cohorts of new firms have lower average productivity than incumbents but are themselves a heterogeneous group. The more productive members of the group, on average, survive and, in many cases, their productivity converges to the productivity level of incumbents. Exiting firms are less productive than survivors. Exporters, including firms that recently exited the export market, are more productive than nonexporters. These patterns are consistent with the view that both the domestic and export market sort out high productivity from low productivity firms and that the export market is a tougher screen. The productivity differential between entering and exiting firms is an important source of industry-level productivity growth in Taiwanese manufacturing, accounting for as much as one-half of industry improvement in some industries and time periods.