Entry on Export Markets and Firm-Level Performance Growth: Intra-Industrial Convergence or Divergence?
D21, D24, F12
Export Decision, Investment, Firm Heterogeneity
Economy and Society
Gianmarco I.P. Ottaviano
This paper investigates theoretically and empirically the endogenous investment decision of firms conditioning on export decision. It shows that theoretically, whatever the form of preferences, firms that start exporting invest more and grow more than the others. However, it is shown that when preferences are CES, within each category of firms (domestic and switchers), initial productivity and investment are strategic complements, inducing intra-industrial divergence. On the contrary, when preferences are quadratic, initial productivity and investment are strategic substitutes: less productive firms invest more and grow more than the others, inducing intra-industrial convergence. Empirical results on French data support the predictions of the quadratic preferences model.