Exit from exporting: Does being a two-way trader matter?

Abstract

The aim of this paper is to investigate whether the probability of ceasing to export is lower for firms that simultaneously import intermediate inputs and export (vertically specialized firms à la Hummels et al., The nature and growth of vertical specialization in world trade, 2001), once other firm characteristics are controlled for. On the basis of the estimation of a random-effects probit model with panel data, the authors find that the superior characteristics of these types of two-way trading firms (in terms of size, productivity, foreign ownership and skilled labor) explain their greater resistance to losing their status as exporters. However, even when these distinctive traits are controlled for, the effect of sourcing inputs from abroad on export exit is significantly different for large and small firms, playing a role in continuing to export only for the latter. Thus, it seems that small firms which are both importers of intermediates and exporters have an added advantage which enables them to confront the uncertainty of foreign markets in better conditions and translates to a lower likelihood that they will stop exporting.