Hierarchy of Trade and Sequential Exporting

Export destination baskets of exporting firms do not seem to follow the hierarchy predicted by heterogeneous firms models. Existing literature reconciles theory and data by incorporating additional components of heterogeneity. We first show that we do not need these components to bridge the gap betw...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Boitier, Vincent, Vatan, Antoine
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2017
Subjects
Theory
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Summary:Export destination baskets of exporting firms do not seem to follow the hierarchy predicted by heterogeneous firms models. Existing literature reconciles theory and data by incorporating additional components of heterogeneity. We first show that we do not need these components to bridge the gap between data and theory. We highlight a strong correlation between the respect of hierarchy and the age of the firm. Without taking into account the age of firms, what we observe in the data is not a drawback but a snapshot of the convergence toward theory's prediction. Second, we develop a simple dynamic model that features this convergence. Our theoretical argument is based upon sequential exporting (choosing one destination at a time) and upon a baseline trade-off between attractiveness and competition.