Demand Uncertainty: Exporting Delays and Exporting Failures
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Demand Uncertainty: Exporting Delays and Exporting Failures. / Nguyen, Daniel Xuyen.
I: Journal of International Economics, Bind 86, Nr. 2, 01.03.2012, s. 336-344.Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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TY - JOUR
T1 - Demand Uncertainty: Exporting Delays and Exporting Failures
AU - Nguyen, Daniel Xuyen
N1 - JEL classification: F12
PY - 2012/3/1
Y1 - 2012/3/1
N2 - This paper presents a model of trade that explains why firms wait to export and why many exporters fail. Firms face uncertain demands that are only realized after the firm enters the destination. The model retools the timing of the resolution of uncertainty found in models with heterogeneity of firm productivity. This retooling addresses several shortcomings. First, the imperfect correlation of demands reconciles the sales variation observed in and across destinations. Second, since demands for the firm's output are correlated across destinations, a firm can use previously realized demands to forecast unknown demands in untested destinations. The option to forecast demands causes firms to delay exporting in order to gather more information about foreign demand. Third, since uncertainty is resolved after entry, many firms enter a destination and then exit after learning that they cannot profit. This prediction reconciles the high rate of exit seen in the first years of exporting. Finally, when faced with multiple destinations to which they can export, many firms will choose to sequentially export in order to slowly learn more about its chances for success in untested markets.
AB - This paper presents a model of trade that explains why firms wait to export and why many exporters fail. Firms face uncertain demands that are only realized after the firm enters the destination. The model retools the timing of the resolution of uncertainty found in models with heterogeneity of firm productivity. This retooling addresses several shortcomings. First, the imperfect correlation of demands reconciles the sales variation observed in and across destinations. Second, since demands for the firm's output are correlated across destinations, a firm can use previously realized demands to forecast unknown demands in untested destinations. The option to forecast demands causes firms to delay exporting in order to gather more information about foreign demand. Third, since uncertainty is resolved after entry, many firms enter a destination and then exit after learning that they cannot profit. This prediction reconciles the high rate of exit seen in the first years of exporting. Finally, when faced with multiple destinations to which they can export, many firms will choose to sequentially export in order to slowly learn more about its chances for success in untested markets.
U2 - 10.1016/j.jinteco.2011.10.007
DO - 10.1016/j.jinteco.2011.10.007
M3 - Journal article
VL - 86
SP - 336
EP - 344
JO - Journal of International Economics
JF - Journal of International Economics
SN - 0022-1996
IS - 2
ER -
ID: 35925945