Department of Economics and Business Economics

Export market exit and firm survival: Theory and first evidence

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This paper deploys a dynamic extension of the Melitz (Econometrica 71(6):1695-1725, 2003) model to generate predictions on export market exit and firm survival in a setting where firms endogenously make exit decisions. In contrast, previous work typically assumes simple random death. The central driver of the model dynamics-creating the endogenous exit decision of firms-is the inclusion of exogenous economy wide technological progress. Thus our framework contains vintage capital properties and accordingly creative destruction of old firms by new firms. The model predicts-inter alia-that a higher relative productivity increases not only the likelihood of exporting, but also the chances of firm survival and continued export market engagements. We relate the model predictions to the empirical stylized facts of export market exit and firm survival based on Danish firm-level data. Overall, our empirical results support the central predictions from the model. First, productivity is a good predictor for survival. Secondly, firms experience a decline in market share prior to death and export market exit. Thirdly, firms that die or quit their exporting activity are small. Fourthly, small firms constitute the largest share of exits in a given cohort. Fifthly, the productivity distribution of survivors first-order dominates the one of exiting firms on both domestic and export markets. Finally, we confirm that a large share of firms which stop exporting continue to exist as pure domestic firms.

Original languageEnglish
Title of host publicationGlobalization : Strategies and Effects
Number of pages23
Publication year1 Jan 2017
ISBN (print)9783662495001
ISBN (Electronic)9783662495025
Publication statusPublished - 1 Jan 2017

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