Advanced

How to combine high sunk costs of exporting and low export survival

Gullstrand, Joakim LU and Persson, Maria LU (2015) In Review of World Economics 151(1). p.23-51
Abstract
In endeavouring to explain the empirical puzzle that the sunk costs of exporting are important, but that, at

the same time, trade flows do not, on average, survive for very long, this paper explores the concepts of

core and peripheral markets. First, it illustrates that if the importance of sunk costs as well as the expected

future returns from exporting are different, depending on whether the export decision refers to a core or a

peripheral market, it is plausible that while firms will tend to stay on the core market for a long time, they

will enter and exit the peripheral market much more frequently. Second, using firm-product-destinationspecific

export data for all firms in the... (More)
In endeavouring to explain the empirical puzzle that the sunk costs of exporting are important, but that, at

the same time, trade flows do not, on average, survive for very long, this paper explores the concepts of

core and peripheral markets. First, it illustrates that if the importance of sunk costs as well as the expected

future returns from exporting are different, depending on whether the export decision refers to a core or a

peripheral market, it is plausible that while firms will tend to stay on the core market for a long time, they

will enter and exit the peripheral market much more frequently. Second, using firm-product-destinationspecific

export data for all firms in the Swedish food chain for the period 1997–2007, an empirical test is

carried out to ascertain whether there is support for the hypothesis that trade duration will be longer for

core markets. Employing two variables that capture different aspects of the core/periphery dimension, it is

found that firms will indeed tend to stay longer in their core markets, while export decisions regarding

peripheral markets are much less long-term. The conclusion, therefore, is that the empirical puzzle can be

explained by taking into account the fact that the trade hysteresis literature builds on data on the core

market decision to export or not, while the trade survival literature also includes data on decisions to stay

in or exit peripheral markets. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
Review of World Economics
volume
151
issue
1
pages
23 - 51
publisher
Springer
external identifiers
  • wos:000348566500002
  • scopus:84943589315
ISSN
1610-2878
DOI
10.1007/s10290-014-0204-7
language
English
LU publication?
yes
id
c147dab3-421d-4307-990b-8d639d9525e3 (old id 4698342)
date added to LUP
2014-10-16 16:34:19
date last changed
2017-05-28 04:04:53
@article{c147dab3-421d-4307-990b-8d639d9525e3,
  abstract     = {In endeavouring to explain the empirical puzzle that the sunk costs of exporting are important, but that, at<br/><br>
the same time, trade flows do not, on average, survive for very long, this paper explores the concepts of<br/><br>
core and peripheral markets. First, it illustrates that if the importance of sunk costs as well as the expected<br/><br>
future returns from exporting are different, depending on whether the export decision refers to a core or a<br/><br>
peripheral market, it is plausible that while firms will tend to stay on the core market for a long time, they<br/><br>
will enter and exit the peripheral market much more frequently. Second, using firm-product-destinationspecific<br/><br>
export data for all firms in the Swedish food chain for the period 1997–2007, an empirical test is<br/><br>
carried out to ascertain whether there is support for the hypothesis that trade duration will be longer for<br/><br>
core markets. Employing two variables that capture different aspects of the core/periphery dimension, it is<br/><br>
found that firms will indeed tend to stay longer in their core markets, while export decisions regarding<br/><br>
peripheral markets are much less long-term. The conclusion, therefore, is that the empirical puzzle can be<br/><br>
explained by taking into account the fact that the trade hysteresis literature builds on data on the core<br/><br>
market decision to export or not, while the trade survival literature also includes data on decisions to stay<br/><br>
in or exit peripheral markets.},
  author       = {Gullstrand, Joakim and Persson, Maria},
  issn         = {1610-2878},
  language     = {eng},
  number       = {1},
  pages        = {23--51},
  publisher    = {Springer},
  series       = {Review of World Economics},
  title        = {How to combine high sunk costs of exporting and low export survival},
  url          = {http://dx.doi.org/10.1007/s10290-014-0204-7},
  volume       = {151},
  year         = {2015},
}