Heterogeneity and Uncertainty in the Dynamics of Firm Selection into Foreign Markets

Heterogeneity and Uncertainty in the Dynamics of Firm Selection into Foreign Markets

Title:

Heterogeneity and Uncertainty in the Dynamics of Firm Selection into Foreign Markets

Number:

14/01

Author(s):

Mehmet Fatih Ulu

Language:

English

Date:

January 2014

Abstract:

Firm-level data indicates a positive relationship between a firm’s revenues from a market and the number of markets penetrated by that firm, and previous presence in that market. After studying the role of different types of firm and market-specific shocks in firms’ selection decisions, I quantify an entry-cost-reducing effect of previous presence in a market, and increasing returns to being in more markets. I find that being in an additional market increases the demand in other markets between 1% and 3% across different sectors. Additionally, a variance decomposition between firm and market-specific heterogeneity and idiosyncratic uncertainty in firms’ selection problem indicates that 1) firm-specific heterogeneity explains more of the total residual variation in revenues from foreign markets as opposed to idiosyncratic variation in technology intensive industries than less technology intensive ones and 2) the relative importance of idiosyncratic components diminishes as the level of per capita income of a destination market increases.

Keywords:

Firm heterogeneity, Dynamic selection, Trade

JEL Codes:

C35; D21; D22; F14

Heterogeneity and Uncertainty in the Dynamics of Firm Selection into Foreign Markets
CENTRAL BANK OF THE REPUBLIC OF TURKEY Head Office Anafartalar Mah. İstiklal Cad. No:10 06050 Ulus Altındağ Ankara Phone : (+90 312) 507 50 00 | Fax : (+90 312) 507 56 40