Resource information
This paper examines firm entry and
survival in exporting, and in products and markets not
previously served by any domestic exporters. The authors use
data on the nontraditional agriculture sector in Peru, which
grew seven-fold from 1994 to 2007. They find tremendous firm
entry and exit in the export sector, with exits more likely
after one year and among firms that start small. There is
also significant entry and exit in new markets. In contrast,
such trial and error in new products is rare. New products
are typically discovered by large experienced exporters and
there is increased entry after products are discovered. The
results imply that high sunk costs of entry are of concern
for product discovery, especially for products that are not
consumed domestically. In contrast, the tremendous entry and
exit in exporting and in new markets suggests that initial
sunk costs are relatively low. The authors develop a model
that explains how entrepreneurs decide to export and to
develop new export products and markets when there are sunk
costs of discovery and uncertainty about idiosyncratic
costs. The model explains many features of the data.
