How to combine high sunk costs of exporting and low export survival

Joakim Gullstrand () and Maria Persson

Review of World Economics (Weltwirtschaftliches Archiv), 2015, vol. 151, issue 1, 23-51

Abstract: In endeavouring to explain the empirical puzzle that the sunk costs of exporting are important, but that, at the same time, trade flows do not, on average, survive for very long, this paper explores the concepts of core and peripheral markets. First, it illustrates that if the importance of sunk costs as well as the expected future returns from exporting are different, depending on whether the export decision refers to a core or a peripheral market, it is plausible that while firms will tend to stay on the core market for a long time, they will enter and exit the peripheral market much more frequently. Second, using firm-product-destination-specific export data for all firms in the Swedish food chain for the period 1997–2007, an empirical test is carried out to ascertain whether there is support for the hypothesis that trade duration will be longer for core markets. Employing two variables that capture different aspects of the core/periphery dimension, it is found that firms will indeed tend to stay longer in their core markets, while export decisions regarding peripheral markets are much less long-term. The conclusion, therefore, is that the empirical puzzle can be explained by taking into account the fact that the trade hysteresis literature builds on data on the core market decision to export or not, while the trade survival literature also includes data on decisions to stay in or exit peripheral markets. Copyright Kiel Institute 2015

Keywords: Sunk costs; Trade duration; Survival; Core versus peripheral markets; Sweden; Firm-level data; Discrete-time hazard models; F10; F14 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10290-014-0204-7 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: How to Combine High Sunk Costs of Exporting and Low Export Survival (2013)
Working Paper: How to Combine High Sunk Costs of Exporting and Low Export Survival (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:weltar:v:151:y:2015:i:1:p:23-51

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10290/PS2

DOI: 10.1007/s10290-014-0204-7

Access Statistics for this article

Review of World Economics (Weltwirtschaftliches Archiv) is currently edited by Paul Bergin, Holger Görg, Cédric Tille and Gerald Willmann

More articles in Review of World Economics (Weltwirtschaftliches Archiv) from Springer, Institut für Weltwirtschaft (Kiel Institute for the World Economy) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().