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.
- 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"
- international entrepreneurship
- firm-level heterogeneity
- real options
- stochastic dynamic programming