Demand Uncertainty: Exporting Delays and Exporting Failures" Mimeo

This paper presents a model of trade that explains why \u85rms wait to export and why many exporters fail. Firms face uncertain demands that are only realized after the \u85rm enters the destination. The model retools the timing of the resolution of uncertainty found in models with heterogeneity of \u85rm productivity. This retooling addresses several shortcomings. First, the imperfect correlation of demands reconciles the sales variation observed in and across destinations. Second, since demands for the \u85rms output are correlated across destinations, a \u85rm can use previously realized demands to forecast unknown demands in untested destinations. The option to forecast demands causes \u85rms to delay exporting in order to gather more information about foreign demand. Third, since uncertainty is resolved after entry, many \u85rms enter a destination and then exit after learning that they cannot pro\u85t. This prediction reconciles the high rate of exit seen in the \u85rst years of exporting. Finally, when faced with multiple destinations to which they can export, many \u85rms will choose to sequentially export in order to slowly learn more about its chances for success in untested markets