Volatility and diversification of exports: firm-level theory and evidence

Vannoorenberghe, Gonzague; Wang, Zheng; Yu, Zhihong

Abstract

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.

Citation

Vannoorenberghe, G., Wang, Z., & Yu, Z. (2016). Volatility and diversification of exports: firm-level theory and evidence. European Economic Review, 89(October), 216-247. https://doi.org/10.1016/j.euroecorev.2016.07.002

• Journal Article Type: Article
• Acceptance Date: Jul 7, 2016
• Online Publication Date: Jul 25, 2016
• Publication Date: 2016-10
• Deposit Date: Jul 12, 2016
• Publicly Available Date: Jul 27, 2018
• Journal: European economic review
• Print ISSN: 0014-2921
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 89
• Issue: October
• Pages: 216-247
• DOI: https://doi.org/10.1016/j.euroecorev.2016.07.002
• Keywords: Volatility; Diversification; Exports
• Public URL: https://hull-repository.worktribe.com/output/440829
• Publisher URL: http://www.sciencedirect.com/science/article/pii/S0014292116301210
• Additional Information: This is the accepted manuscript of an article published in European economic review, 2016. The version of record is available at the DOI link in this record.
• Contract Date: Jul 12, 2016