Market Entry Costs, Producer Heterogeneity, and Export Dynamics

54 Pages Posted: 6 Dec 2001 Last revised: 25 Oct 2010

See all articles by Sanghamitra Das

Sanghamitra Das

Indian Statistical Institute

Mark J. Roberts

Pennsylvania State University - College of the Liberal Arts - Department of Economics; National Bureau of Economic Research (NBER)

James Tybout

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 2001

Abstract

As the exchange rate, foreign demand, production costs and export promotion policies evolve, manufacturing firms are continually faced with two issues: Whether to be an exporter, and if so, how much to export. We develop a dynamic structural model of export supply that characterizes these two decisions and estimate the model using plant-level panel data on Colombian chemical producers. The model embodies uncertainty, plant-level heterogeneity in export profits, and sunk entry costs for plants breaking into foreign markets. Our estimates, and the simulation exercises that they support, yield several implications. First, entry costs are typically large, but vary greatly across producers. Second, there is substantial cross-plant heterogeneity in gross expected export profit streams. Third, these large entry costs make expectations about future exporting conditions important for many producers, so changes in the exchange rate regime that are credible induce much more entry than those that are not. Fourth, however, most of the entry and exit takes place among marginal exporters who contribute little to aggregate export revenues. Finally, subsidies on export earnings have a much larger impact on export revenues (per dollar spent) than subsidies that reduce the entry costs faced by new exporters.

Suggested Citation

Das, Sanghamitra and Roberts, Mark J. and Tybout, James R., Market Entry Costs, Producer Heterogeneity, and Export Dynamics (December 2001). NBER Working Paper No. w8629. Available at SSRN: https://ssrn.com/abstract=293242

Sanghamitra Das

Indian Statistical Institute ( email )

7 S.J.S. Sansanwal Marg
Planning Unit
New Delhi - 110016
India

Mark J. Roberts (Contact Author)

Pennsylvania State University - College of the Liberal Arts - Department of Economics ( email )

513 Kern Graduate Building
University Park, PA 16802-3306
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

James R. Tybout

Pennsylvania State University - Department of Economics ( email )

517 Kern Graduate Building
University Park, PA 16802-3306
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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