Firm-Level Heterogeneity and the Decision to Export: A Real Option Approach

31 Pages Posted: 20 Apr 2013

See all articles by Wim Naudé

Wim Naudé

RWTH Aachen University; IZA Institute of Labor Economics; Maastricht School of Management

Thomas Gries

University of Paderborn

Natasa Bilkic

University of Paderborn

Abstract

In "new" new international trade theory, whether firms export or not are determined by their productivity. These models assume that firms enter a market to find their productivity levels revealed to them as in a lottery. In this paper we propose an alternative way to model whether firms export or not, namely as a firm-level decision akin to an investment decision with a real option value. We show that endogenizing the export decision is consistent with patterns of productivity and exporting reported in the empirical literature.

Keywords: international new ventures, firm-level heterogeneity, start-ups, stochastic dynamic programming, trade, exports, productivity, real option theory, investment, firms, international entrepreneurship

JEL Classification: D92, D81, L26, M13

Suggested Citation

Naudé, Wim and Gries, Thomas and Bilkic, Natasa, Firm-Level Heterogeneity and the Decision to Export: A Real Option Approach. IZA Discussion Paper No. 7346, Available at SSRN: https://ssrn.com/abstract=2254199

Wim Naudé (Contact Author)

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Maastricht School of Management ( email )

Endepolsdomein 150
Maastricht, Limburg 6201 BE
Netherlands

Thomas Gries

University of Paderborn ( email )

Warburger St. 100
Paderborn, D-33098
Germany

Natasa Bilkic

University of Paderborn ( email )

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