Export Entry and Exit by German Firms

This paper examines the decision to enter the export market by German firms. While exports have played an important role in recent German business cycle movements, little is known about the export supply response of German firms. This paper presents a dynamic model of the export decision by a profit-maximizing firm. Using a panel of German manufacturing plants, we test for the role of plant characteristics and sunk costs in the entry decision. We find evidence for substantial sunk costs in export entry; exporting today by a plant increases the probability that the plant will export tomorrow by 50%. This advantage depreciates quickly, falling by two thirds in a year. We also find evidence that plant success, as measured by size and productivity, increases the likelihood of exporting.