Self-Selection Versus Trial-and-Error of Exporting: Evidence From SMEs

Abstract

This article presents an empirical analysis of export entry process of small- and medium-sized enterprises (SMEs) by evaluating two mechanisms: self-selection and trial-and-error of exporting. We build a recursive non-linear model in which the likelihood of permanent export entry over the period 2009–2012 depends on export trials and the predicted productivity stemming from innovation activities, both over the previous period. Our sample of French SMEs from Community Innovation Survey (CIS 2008) strongly supports the mechanism of trial-and-error of exporting and the crucial role of different types of innovation in labor productivity without upholding the mechanism of self-selection. However, productivity favors occasional entry, suggesting a potential new and more complete SMEs export entry mechanism. Furthermore, we show evidence of the simultaneous existence of accelerated and gradual export entry. The results are confirmed using a second sample of Normandy SMEs from the interdisciplinary project on enterprise development, innovation, and strategy (IDEIS) project that provides highly pertinent information on SMEs’ innovation and export activities.