Hurdles to Exporting: A Decomposition of Fixed Export Costs
Journal Title: Review of Economics & Finance - Year 2017, Vol 7, Issue 1
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.
Authors and Affiliations
Xuan Wei, Suzanne Thornsbury, David Schweikhardt
Keywords
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