Much of the variation in international trade volume is driven by firms' extensive margin decisions of whether to participate in export markets. We evaluate how the information potential exporters possess influences their decisions. We estimate a model of export participation in which firms weigh the fixed costs of exporting against the forecasted profits from serving a foreign market. We adopt a moment inequality approach, placing weak assumptions on firms' expectations. The framework allows us to test whether firms differ in the information they have about foreign markets. We find that larger firms possess better knowledge of market conditions in foreign countries, even when those firms have not exported in the past. Quantifying the value of information, we show that, in a typical destination, total exports rise while the number of exporters falls when firms have access to better information to forecast export revenues.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics