GEP 10/12: The Decision to Export and the Volatility of Sales

Summary

This paper studies the export decision of risk-averse firms in an environment characterized by aggregate uncertainty and no capital markets. It is shown that exporting increases the volatility of sales.

Abstract

This paper studies the export decision of risk-averse firms in a model featuring aggregate uncertainty and no capital markets. Firms seeking to enter the foreign market face a sunk cost as well as a fixed participation cost every period they export. Using a calibrated version of the model, I show that firms are more likely to export when the correlation between domestic and foreign aggregate shocks is negative and when their degree of risk-aversion is higher. Counterfactual experiments show that exporting increases the volatility of total sales.

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Authors

Alejandro Riaño

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