CIAO DATE: 09/2012

Market specific fixed and sunk export costs: The impact of learning and spillovers

August 2012

Norwegian Institute of International Affairs

Abstract

Firms may face substantial fixed sunk costs when entering an export market. While previous studies have focused on global or country specific sunk export costs, in this study we analyse the importance of market specific sunk export costs (defining ‘market’ as the market for a given product in a given country). In addition, we investigate the impact of market specific versus country specific sunk export costs. We also distinguish between sunk and fixed costs by analysing the decisions to enter new markets separately from the decision to stay in existing markets. Market specific fixed and sunk export costs are affected by various kinds of learning and spillover effects. A firm may learn about exporting from intramarket experience or from intermarket experience across products or countries. Moreover, knowledge about exporting may spill over from other firms in the export countries, within and between products categories. We use firm-level panel data for Norwegian seafood exports distributed on products and countries. The results support market specific sunk costs, learning and spillovers.