We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Export failure and its consequences: evidence from Colombian exporters.
- Authors
Mora, Jesse
- Abstract
Exporters pay high fixed costs to enter foreign markets, yet the majority will not export beyond one year. What happens to these exporters after they fail abroad? For these firms, exporting likely resulted in heavy profit losses. Despite this, the trade literature largely ignores export failure and views exporting as a simple cost-benefit analysis based on foreign profits and trade costs. This rationale ignores the differential effect export failure may have on financially-constrained firms. This study develops a heterogeneous-firm model with financial constraints and marketing costs to show how export failure can have the following effects: (1) make the liquidity constraint more likely to bind, (2) force financially-constrained firms to limit marketing expenditure and, hence, decrease domestic sales, and (3) induce some firms to default. A Colombian dataset merging firm-level trade and financial data is built to test the propositions of the model. The author finds evidence that export failure has a differential impact on financially-constrained firms. After exporting, financially constrained unsuccessful exporters have a worse cash flow to total assets ratio, lower domestic revenue, slower domestic revenue growth, and a higher probability of going out of business. The findings are robust to comparisons with similar successful exporters and even non-exporters, and an instrumental variable approach.
- Subjects
EXPORTERS; MARKETING costs; COST benefit analysis; OVERHEAD costs; INTERNATIONAL markets; EXPORTS
- Publication
Review of World Economics, 2023, Vol 159, Issue 3, p697
- ISSN
1610-2878
- Publication type
Article
- DOI
10.1007/s10290-022-00480-3