Working Paper No. 12-08

Fixed Export Costs and Firm-Level Export Behavior
Luis Castro, Ben Li, Keith E. Maskus, Yiqing Xie
October 2012


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