How to combine high sunk costs of exporting and low export survival
Author
Summary, in English
In endeavouring to explain the empirical puzzle that the sunk costs of exporting are important, but that, at
the same time, trade flows do not, on average, survive for very long, this paper explores the concepts of
core and peripheral markets. First, it illustrates that if the importance of sunk costs as well as the expected
future returns from exporting are different, depending on whether the export decision refers to a core or a
peripheral market, it is plausible that while firms will tend to stay on the core market for a long time, they
will enter and exit the peripheral market much more frequently. Second, using firm-product-destinationspecific
export data for all firms in the Swedish food chain for the period 1997–2007, an empirical test is
carried out to ascertain whether there is support for the hypothesis that trade duration will be longer for
core markets. Employing two variables that capture different aspects of the core/periphery dimension, it is
found that firms will indeed tend to stay longer in their core markets, while export decisions regarding
peripheral markets are much less long-term. The conclusion, therefore, is that the empirical puzzle can be
explained by taking into account the fact that the trade hysteresis literature builds on data on the core
market decision to export or not, while the trade survival literature also includes data on decisions to stay
in or exit peripheral markets.
the same time, trade flows do not, on average, survive for very long, this paper explores the concepts of
core and peripheral markets. First, it illustrates that if the importance of sunk costs as well as the expected
future returns from exporting are different, depending on whether the export decision refers to a core or a
peripheral market, it is plausible that while firms will tend to stay on the core market for a long time, they
will enter and exit the peripheral market much more frequently. Second, using firm-product-destinationspecific
export data for all firms in the Swedish food chain for the period 1997–2007, an empirical test is
carried out to ascertain whether there is support for the hypothesis that trade duration will be longer for
core markets. Employing two variables that capture different aspects of the core/periphery dimension, it is
found that firms will indeed tend to stay longer in their core markets, while export decisions regarding
peripheral markets are much less long-term. The conclusion, therefore, is that the empirical puzzle can be
explained by taking into account the fact that the trade hysteresis literature builds on data on the core
market decision to export or not, while the trade survival literature also includes data on decisions to stay
in or exit peripheral markets.
Department/s
Publishing year
2015
Language
English
Pages
23-51
Publication/Series
Review of World Economics
Volume
151
Issue
1
Document type
Journal article
Publisher
Springer
Topic
- Economics and Business
Status
Published
ISBN/ISSN/Other
- ISSN: 1610-2878