The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs

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Abstract

Recent theoretical models of entry predict that, in the presence of sunk costs, current market participation is affected by prior experience. This paper quantifies the effect of prior exporting experience on the decisions of Colombian manufacturing plants to participate in foreign markets. It develops a dynamic discrete-choice model of exporting behavior that separates the roles of profit heterogeneity and sunk entry costs in explaining plants' exporting status. Sunk costs are found to be significant, and prior export experience is shown to increase the probability of exporting by as much as 60 percentage points. (JEL F10, L10, C25).

Original languageEnglish (US)
Pages (from-to)545-564
Number of pages20
JournalAmerican Economic Review
Volume87
Issue number4
StatePublished - Sep 1 1997

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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