Firm Export Participation: Entry, Spillovers and Tradability

This paper analyses the choices made by individual firms to enter the export market. It uses data on a sample of Irish firms over seventeen years to test whether sunk costs influence the decision to export. A probit specification tests the probability of exporting in the current period given past exporting experience, controlling for the firm’s initial export status. Methodologically, the contribution of this paper is the use of a two-step estimation procedure suggested by Orme (1997), which controls for the influence of initial conditions. In addition, this paper tests for the existence of spillover effects in exporting, in particular if the levels of export activity in a sector increase the probability of a firm participating in the export market. Significant evidence of sunk costs was found, based on the observed persistence of export activity and the explanatory power of previous exporting experience on current export status. A measure of sector tradability was also used, and as expected firms in more easily traded sectors were most likely to be exporters. However, little evidence of spillovers was found in determining export market participation