Why Some Firms Export

Abstract

Traditional trade models focus on aggregate and industry flows and usually ignore firm level factors. This paper presents a dynamic model of the export decision by a profit-maximizing firm. Using a panel of U.S. manufacturing plants, we test for the role of plant characteristics, spillovers from neighboring exporters, entry costs and government expenditures. Entry and exit in the export market by U.S. plants is substantial, past exporters are apt to reenter, and plants are likely to export in consecutive years. However, we find that entry costs, although present, are modest and spillovers from other plants negligible. Plan characteristics, especially those indicative of past success, strongly increase the probability of exporting as do favorable exchange rate shocks.

Keywords: exporting, hysteresis, export promotion, panel data, unobserved heterogeneity, dynamic binary choice

JEL Classification: F20, D21, L60