Journal
EUROPEAN ECONOMIC REVIEW
Volume 89, Issue -, Pages 216-247Publisher
ELSEVIER
DOI: 10.1016/j.euroecorev.2016.07.002
Keywords
Volatility; Diversification; Exports
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We show using detailed firm-level Chinese data that, among small exporters, firms selling, to a more diversified set of countries have more volatile exports, while the opposite holds among large exporters. This a priori surprising result for small firms is robust to a wide array of specifications and controls. Our theoretical explanation for these observations rests on the presence of fixed costs of exports per destination and short-run demand shocks. In this setup, the volatility of a firm's exports depends not only on the diversification of its destination portfolio but also, on whether it exports permanently to all markets. Among small exporters, a more diversified pool of destinations makes the firm more likely to export occasionally to some markets, thereby raising export volatility. (C) 2016 Elsevier B.V. All rights reserved.
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