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Importing exporters and exporting importers: A study of the decision of Chinese firms to engage in international trade
Author(s) -
Elliott Robert J.R.,
Horsewood Nicholas J.,
Zhang Liyun
Publication year - 2019
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12374
Subject(s) - sunk costs , interdependence , multivariate probit model , economics , probit model , international trade , probit , bivariate analysis , international economics , industrial organization , microeconomics , business , econometrics , statistics , mathematics , political science , law
This paper examines the complex and interdependent relationship between importing and exporting for a panel of Chinese manufacturing firms. We estimate the decision to import and export simultaneously within a dynamic random‐effects bivariate probit framework addressing the endogenous initial conditions problem. Results show that decisions to export and import are simultaneously determined and that sunk‐entry costs play a significant role in a firm's decision to enter international markets. Costs are larger for exporting. We also find a substitution effect between the two decisions. The substitutability between exporting and importing is greater for financially constrained private firms.