Working Paper No. 12-08
Fixed Export Costs and Firm-Level Export Behavior
Luis Castro, Ben Li, Keith E. Maskus, Yiqing Xie
October 2012
ABSTRACT
This paper provides a direct test on how fixed export costs and productivity
jointly determine firm-level export behavior. We construct fixed
export cost indices for each industry-region-year tuple of Chile and match
them to Chilean firms in those tuples. Our empirical results show that the
effect of fixed export costs on export propensity is negative and that of
productivity is positive, which is the foundation of the widely-used sorting
mechanism in the theoretical literature on firm-level export behavior. In
particular, high-productivity nonexporters face higher fixed export costs
than low-productivity exporters. We also find that the substitution between
fixed export costs and productivity in determining export decisions
is weaker for firms with higher productivity, and that large fixed export
costs and productivity dispersion of a tuple both raise the export volume
of the average exporter in the tuple.
JEL classification: F10, F12, F14
Keywords: Sorting, Firm heterogeneity, trade costs, exporter premium