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Geography and firm exports: new evidence on the nature of sunk costs

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Lawless, Martina

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Abstract This paper presents an examination of the trading patterns of individual firms, looking at their coverage of export markets and movements into and out of destinations. This analysis is made possible by access to a new survey data set of Irish firms, which includes detailed information on firm characteristics and on the destinations of their exports over a 2-year period. In line with Eaton et al. (Am Econ Rev 94:150–154, 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 one-third of firms change their market coverage, usually by entering or exiting one additional market. This is consistent with an interpretation where the bulk of any sunk cost encountered in exporting is incurred during the initial entry to the export market. Subsequent entry to additional markets may be made easier by prior export experience, which could help reduce the sunk cost of extending market coverage.
Classification Political Economy; Economic Sectors
Free Keywords Firm exports; Market coverage; Sunk costs; F19; D21
Document language English
Publication Year 2010
Page/Pages p. 691-707
Journal Review of World Economics, 146 (2010) 4
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)