A search and learning model of export dynamics

Abstract

Exporting is harder than selling at home, and overcoming barriers takes time. We identify key obstacles to exporting and measure their importance by developing a model of firm-level export dynamics with costly customer search, visibility effects, and learning about product appeal. Fitting the model to U.S. import data on Colombian manufactures, we replicate patterns of exporter maturation. A firm’s customer base and market knowledge are valuable intangible assets: losing both through “market amnesia” would cost Colombian exporters US$14.2 billion, over twice annual exports to the U.S. About a quarter of this reflects lost future sales to current customers; the rest stems from the cost of relearning product appeal and regaining visibility. The frictions we estimate slow trade’s response to shocks: the 10-year export sales response to an exchange rate shock is 48 percent larger than the 1-year response.