Peter Chacha (University of Cape Town)

Exporting to fragile states in Africa: Firm level evidence (with Lawrence Edwards, UCT)

Abstract

This study analyses the effect of market access costs, namely changes in the fragility of a destination market on Kenyan firms’ export behaviour. It examines the effect of fragility on a Kenyan firm’s decision to export to a given destination market in Africa and the role of firm size in mediating this outcome. The empirical strategy controls for endogeneity of destination choice by the firm through firm-destination country fixed effects. The analysis reveals that fragility negatively affects a firm’s decision to enter a given destination market, reducing Kenya’s bilateral trade through the number of firms willing to export to fragile states in Africa. An increase in a firm’s size is found to be key mediation to market access costs, including destination fragility. The results show that larger firms are less adversely affected by fragility and are more likely to become multi-destination exporters to the region compared to small exporters.