Breaking into New Markets: Relying on Networks and Spillovers

CAEPR Working Paper Series 2018-005

42 Pages Posted: 25 Jul 2018 Last revised: 22 Oct 2019

See all articles by Shibi He

Shibi He

Indiana University Bloomington

Volodymyr Lugovskyy

Indiana University Bloomington - Department of Economics

Date Written: October 17, 2019

Abstract

As documented in the literature, exporting firms breaking into new markets can help alleviate risk and uncertainty by using various information channels. Such channels include spillovers, foreign consumer networks, and, potentially, foreign supplier networks. Novel to the literature, we jointly estimate the effects of these three channels. We show that each of these channels has statistically and economically significant effects on breaking into new markets and that omitting any of the channels in the estimation equation can bias (upwards) the marginal effects of the other channels by up to 150%. Each of these channels has a stronger magnitude of the effect than all other control variables combined, thereby increasing the probability of breaking into new markets by up to 50%. For a subset of our data, we were able to match importing and exporting firms and construct a more granular, firm-to-firm measure of the foreign consumer networks. The effect of our measure is three times greater (on breaking into new markets) than that of a more aggregate, firm-to-country measure. This implies that information is more likely to dissipate through the direct partners as emphasized by the networks literature.

Keywords: Firm-Level, Spillover, Networks, Trade

JEL Classification: F1, L14

Suggested Citation

He, Shibi and Lugovskyy, Volodymyr, Breaking into New Markets: Relying on Networks and Spillovers (October 17, 2019). CAEPR Working Paper Series 2018-005, Available at SSRN: https://ssrn.com/abstract=3207733 or http://dx.doi.org/10.2139/ssrn.3207733

Shibi He (Contact Author)

Indiana University Bloomington ( email )

Dept of Biology
100 South Indiana Ave.
Bloomington, IN 47405
United States

Volodymyr Lugovskyy

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

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