Volatility and diversification of exports: Firm-level theory and evidence
We show using detailed firm-level Chinese data that, among small exporters, firms selling to a more diversified set of countries have more volatile exports, while the opposite holds among large exporters. This a priori surprising result for small firms is robust to a wide array of specifications and controls. Our theoretical explanation for these observations rests on the presence of fixed costs of exports per destination and short-run demand shocks. In this setup, the volatility of a firm's exports depends not only on the diversification of its destination portfolio but also on whether it exports permanently to all markets. Among small exporters, a more diversified pool of destinations makes the firm more likely to export occasionally to some markets, thereby raising export volatility.
Original Open Access Repository: https://hydra.hull.ac.uk/resources/hull:13520
Citation : Vannoorenberghe, G., Wang, Z and Yu, Z. (2016) Volatility and diversification of exports: Firm-level theory and evidence. European Economic Review, 89, pp. 216-247
Research Institute : Institute for Applied Economics and Social Value (IAESV)
Peer Reviewed : Yes