Hurdles to Exporting: A Decomposition of Fixed Export Costs

Xuan Wei (), Suzanne Thornsbury () and David Schweikhardt
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Xuan Wei: Gulf Coast Research and Education Center University of Florida, Wimauma, FL 33598, U.S.A.
Suzanne Thornsbury: Markets and Trade Economics Division, USDA Economic Research Service, Washington D.C. 20024, U.S.A.

Review of Economics & Finance, 2017, vol. 7, 1-18

Abstract: When firms enter a new foreign market, they not only face per-unit export costs such as tariff and transport costs, but also fixed export costs such as information and compliance costs that do not vary with export volume. This paper distinguishes export market specificity and evaluate the impact of market-specific fixed trade costs on firm export decisions by considering firmdestination trade relationship. By decomposing fixed export costs into information costs and compliance costs, we empirically investigate how their presence impacts the decision of whether or not to export to a specific destination. Using a panel of bilateral trade flow data at SITC4-digit industry level from 1991-2000 to approximate export decisions of heterogeneous firms, results show that information costs and compliance are equally prohibitive to export. Paying information costs decreases the probability of export by 9 to 16 percentage points and acts as a prior hurdle in determining whether or not to export to a specific foreign market. Meanwhile, compliance cost decreases the probability of export by 16 to 18 percentage points.

Keywords: Market specificity; Decomposition; Information costs; Compliance costs; Probit model (search for similar items in EconPapers)
JEL-codes: C23 D22 F14 L10 (search for similar items in EconPapers)
Date: 2017
Note: The authors would like to thank Jeffrey Wooldridge, Susan Chun Zhu, Xianwei Meng, two anonymous reviewers and the Editor for their discussions and suggestions. Xuan Wei also thanks for the Elton R. Smith Endowment funding for this research during her PhD studies at Michigan State University. The views in this article do not necessarily represent those of USDA or the Economic Research Service.
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