True versus spurious state dependence in firm performance: The case of German exports

TY - JOUR

T1 - True versus spurious state dependence in firm performance

T2 - The case of German exports

AU - Kaiser, Ulrich

AU - Kongsted, Hans Christian

N1 - JEL Classification: C23, D21

PY - 2008

Y1 - 2008

N2 - This paper analyzes the persistence of firms' exporting behavior in a panel of German manufacturing firms using dynamic binary choice models. We distinguish between true and spurious state dependence in exports and apply fixed effects methods that allow us to verify the robustness of our results to critical assumptions on firms' initial export status. We find robust evidence of state dependence in the current export status of firms. We also document an important role of unobserved permanent firm heterogeneity (spurious state dependence) and quantify the relative importance of different export determinants. Our results, which are consistent with the findings of previous studies on firms in developing countries and in the United States, show the presence of important sunk costs in export market entry and a depreciation of knowledge and experience in export markets.

AB - This paper analyzes the persistence of firms' exporting behavior in a panel of German manufacturing firms using dynamic binary choice models. We distinguish between true and spurious state dependence in exports and apply fixed effects methods that allow us to verify the robustness of our results to critical assumptions on firms' initial export status. We find robust evidence of state dependence in the current export status of firms. We also document an important role of unobserved permanent firm heterogeneity (spurious state dependence) and quantify the relative importance of different export determinants. Our results, which are consistent with the findings of previous studies on firms in developing countries and in the United States, show the presence of important sunk costs in export market entry and a depreciation of knowledge and experience in export markets.

KW - Faculty of Social Sciences

KW - export activity

KW - dynamic binary choice models

KW - fixed effects

U2 - 10.1007/s00181-007-0149-y

DO - 10.1007/s00181-007-0149-y

M3 - Journal article

SN - 0377-7332

VL - 35

SP - 207

EP - 228

JO - Empirical Economics

JF - Empirical Economics

IS - 2

ER -