Volatility and diversification of exports: Firm-level theory and evidence: Firm-level theory and evidence

TY - JOUR

T1 - Volatility and diversification of exports: Firm-level theory and evidence

T2 - Firm-level theory and evidence

AU - Vannoorenberghe, Gonzague

AU - Wang, Zheng

AU - Yu, Zhihong

N1 - Copyright: © 2016 Elsevier B.V. All rights reserved.

PY - 2016/10

Y1 - 2016/10

N2 - We show using detailed firm-level Chinese data that, among small exporters, firms selling to a more diversified set of countries have more volatile exports, while the opposite holds among large exporters. This a priori surprising result for small firms is robust to a wide array of specifications and controls. Our theoretical explanation for these observations rests on the presence of fixed costs of exports per destination and short-run demand shocks. In this setup, the volatility of a firm's exports depends not only on the diversification of its destination portfolio but also on whether it exports permanently to all markets. Among small exporters, a more diversified pool of destinations makes the firm more likely to export occasionally to some markets, thereby raising export volatility.

AB - We show using detailed firm-level Chinese data that, among small exporters, firms selling to a more diversified set of countries have more volatile exports, while the opposite holds among large exporters. This a priori surprising result for small firms is robust to a wide array of specifications and controls. Our theoretical explanation for these observations rests on the presence of fixed costs of exports per destination and short-run demand shocks. In this setup, the volatility of a firm's exports depends not only on the diversification of its destination portfolio but also on whether it exports permanently to all markets. Among small exporters, a more diversified pool of destinations makes the firm more likely to export occasionally to some markets, thereby raising export volatility.

KW - Volatility

KW - Diversification

KW - Exports

U2 - 10.1016/j.euroecorev.2016.07.002

DO - 10.1016/j.euroecorev.2016.07.002

M3 - Article

SN - 1873-572X

VL - 89

SP - 216

EP - 247

JO - European Economic Review

JF - European Economic Review

ER -