Sequential exporting

Abstract

Many new exporters give up exporting very shortly, despite substantial entry costs; others shoot up foreign sales and expand to new destinations. We develop a model based on experimentation to rationalize these and other dynamic patterns of exporting fi rms. We posit that individual export pro fi tability, while initially uncertain, is positively correlated over time and across destinations. This leads to “ sequential exporting, ” where the possibility of pro fi table expansion at the intensive and extensive margins makes initial entry costs worthwhile despite high failure rates. Firm-level evidence from Argentina's customs, which would be dif fi cult to reconcile with existing models, strongly supports this mechanism.