On Export Duration Puzzles

We investigate two puzzles in the export duration literature. The first puzzle has to do with the frequent entries and exits of firms in export markets, which are at odds with the large fixed export costs in such markets. We introduce convex production technologies in a trade model to show how variable marginal costs create direct linkages between export markets. As fixed export costs vary across destinations, more productive firms need not necessarily export to more destinations. Cost convexity implies that the probability of supplying a given export market is adversely affected by positive export shocks in other markets. This is supported by our empirical analysis of bilateral flows for over 200 agri-food products to 176 destinations originating from six large exporting countries. The second puzzle has to do with the paradoxical effect of tariffs reported in empirical export duration studies. When endogeneity is addressed, tariffs increase the probability of an export failure.

Automated summary

This study investigates two puzzles in the export duration literature. The first puzzle concerns the frequent entries and exits of firms in export markets, which contradicts the high fixed export costs in such markets. By introducing convex production technologies in a trade model, the study shows how variable marginal costs create direct linkages between export markets. The second puzzle relates to the paradoxical effect of tariffs reported in empirical export duration studies. When endogeneity is addressed, tariffs increase the probability of export failure.