Abstract
In models of firm heterogeneity whether firms export or not depends on their productivity. These models assume that firms enter a market only to find their productivity levels revealed to them as in a lottery. However, if productivity is not determined as in a lottery, why do some firms export early and some late? in this paper we propose a model of firm heterogeneity to address this question. In our model exporting is an investment decision with a real option value. Our model illustrates that whether not a firm exports is a matter of timing. Some firms may always find it more worthwhile to postpone exporting, depending on the nature of the product, the target market, and firm-level characteristics. For instance, our model shows that firms evaluating exporting to a volatile, or two foreign market, will need more time to dress up (prepare) for this. We derive implications for policies to support exporting.
Original language | English |
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Pages (from-to) | 1-17 |
Journal | Quarterly Review of Economics and Finance |
Volume | 58 |
Issue number | 1 |
DOIs | |
Publication status | Published - 2015 |
JEL classifications
- d92 - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
- d81 - Criteria for Decision-Making under Risk and Uncertainty
- l26 - Entrepreneurship
- m13 - "New Firms; Startups"
Keywords
- international entrepreneurship
- firm-level heterogeneity
- start-ups
- real options
- stochastic dynamic programming