How Exporters Grow

Doireann Fitzgerald, Stefanie Haller, Yaniv Yedid-Levi

NBER Working Paper No. 21935
Issued in January 2016
NBER Program(s):   EFG   IFM   ITI   PR 

We show that after firms enter new export markets, there are striking dynamics of quantities, but no dynamics of prices, controlling for both costs and selection. This points to an important role for demand in the growth of successful exporters, and to a nonprice mechanism through which quantity demanded grows. A model where firms engage in costly investment in customer base through marketing and advertising, and learn about their idiosyncratic demand, can qualitatively match these facts, along with a declining exit hazard. We structurally estimate the model and find that costs of adjusting customer base are key to explaining how exporters grow.