True versus spurious state dependence in firm performance |
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Authors: | Ulrich Kaiser |
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Institution: | (1) Department of Industrial Economics and International Management, Centre for European Economic Research (ZEW), P.O. Box 10 34 43, 68034 Mannheim, Germany |
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Abstract: | This paper analyzes the persistence of firms’ exporting behavior in a panel of German manufacturing firms using dynamic binary
choice models. We distinguish between true and spurious state dependence in exports and apply fixed effects methods that allow
us to verify the robustness of our results to critical assumptions on firms’ initial export status. We find robust evidence
of state dependence in the current export status of firms. We also document an important role of unobserved permanent firm
heterogeneity (spurious state dependence) and quantify the relative importance of different export determinants. Our results,
which are consistent with the findings of previous studies on firms in developing countries and in the United States, show
the presence of important sunk costs in export market entry and a depreciation of knowledge and experience in export markets.
This paper benefitted substantially from three anonymous referees and Bernd Fitzenberger, one of the editors of this journal.
The authors wish to thank the Centre for European Economic Research (ZEW), Mannheim, for its hospitality during the time this
study was carried out. Both authors gratefully acknowledge helpful comments received at a workshop hosted by the Centre for
Applied Microeconometrics, University of Copenhagen workshop, especially those from Bo Honoré. Useful discussions with Georg
Licht also lead to improvements of this paper. We thank Ken Chay for sharing Gauss codes used in parts of the paper. Lastly,
we would like to thank Bettina Peters, a member of the ZEW team that compiles the data set used in this study, for data guidance
and numerous helpful comments. The activities of the Centre for Applied Microeconometrics are financed by a grant from the
Danish National Research Foundation. |
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Keywords: | State dependence Export activity Dynamic binary choice models Fixed effects |
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