Firm-Level Heterogeneity and the Decision to Export: A Real Option Approach

Wim Naudé, Thomas Gries and Natasa Bilkic ()
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Natasa Bilkic: University of Paderborn

No 7346, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In "new" new international trade theory, whether firms export or not are determined by their productivity. These models assume that firms enter a market to find their productivity levels revealed to them as in a lottery. In this paper we propose an alternative way to model whether firms export or not, namely as a firm-level decision akin to an investment decision with a real option value. We show that endogenizing the export decision is consistent with patterns of productivity and exporting reported in the empirical literature.

Keywords: international new ventures; firm-level heterogeneity; start-ups; stochastic dynamic programming; trade; exports; productivity; real option theory; investment; firms; international entrepreneurship (search for similar items in EconPapers)
JEL-codes: D81 D92 L26 M13 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2013-04
New Economics Papers: this item is included in nep-bec, nep-ent and nep-int
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