How Exporters Grow

49 Pages Posted: 1 Feb 2016

See all articles by Doireann Fitzgerald

Doireann Fitzgerald

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Stefanie Haller

University College Dublin (UCD)

Yaniv Yedid‐Levi

University of British Columbia (UBC) - Vancouver School of Economics

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Date Written: January 2016

Abstract

We show that in successful episodes of export market entry, there are statistically and economically significant post-entry dynamics of quantities, but no post-entry dynamics of markups. This suggests that shifts in demand play an important role in successful entry, but that firms do not use dynamic manipulation of markups as an instrument to shift demand. We structurally estimate two competing models of customer base accumulation to match these moments. In the first model, firms use marketing and advertising to acquire new customers and thereby shift demand and increase sales. In the second, they use temporarily low markups to do so. The marketing and advertising model fits the quantity and markup moments well, and implies that successful entry is associated with high selling expenses. The second model cannot simultaneously fit quantity and markup moments, even with a counterfactually high price elasticity of demand and trade elasticity. We conclude that successful market entry is more likely to be associated with high selling expenses than low markups.

Suggested Citation

Fitzgerald, Doireann and Haller, Stefanie and Yedid-Levi, Yaniv, How Exporters Grow (January 2016). NBER Working Paper No. w21935, Available at SSRN: https://ssrn.com/abstract=2725713

Doireann Fitzgerald (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

Stefanie Haller

University College Dublin (UCD) ( email )

Belfield, Dublin 4 4
Ireland

Yaniv Yedid-Levi

University of British Columbia (UBC) - Vancouver School of Economics

6000 Iona Dr.
Vancouver, British Columbia V6T 1L4
Canada

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