What do Exporters Know?∗

Much of the variation in international trade volume is driven by firms ’ extensive margin deci-sion to participate in export markets. To understand this decision and predict the sensitivity of export flows to changes in trade costs, we estimate a standard model of firms ’ export par-ticipation. In choosing whether to export, firms weigh the fixed costs of exporting against the forecasted profits from serving a foreign market. We show that the estimated parameters and counterfactual predictions from the model depend heavily on how the researcher speci-fies firms ’ expectations over these profits. We therefore develop a novel moment inequality approach with weaker assumptions on firms ’ expectations. Our approach introduces a new set of moment inequalities—odds-based inequalities—and applies the revealed preference in-equalities introduced in Pakes (2010) to a new setting. We use data from Chilean exporters to show that, relative to methods that require specifying firms ’ information sets, our approach generates estimates of fixed export costs that are 65-85 % smaller. Counterfactual reductions in fixed costs generate gains in export participation that are 30 % smaller, on average, than those predicted by existing approaches