The Structure of Export Entry Costs

Heterogeneous firm models of international trade include a country specific sunk cost that firms pay to enter a foreign market. Despite the important role these costs play in determining firm participation, we understand little about their structure. In particular, we do not know if there are country complementarities or general exporting experience components in entry costs. Characterizing the structure of sunk entry costs relies on careful identification of state dependence conditional on heterogeneity. I employ reduced form and structural approaches and a confidential panel of U.S. manufacturers’ exporting behavior to the top 50 destinations 1992-2007 to conclude that export entry costs are mainly country specific. The structural model allows me to estimate that the global entry cost is $20 thousand while country specific entry costs are $3.7 million for Canada, $4.16 million for Japan, $3.58 million for Mexico, $4.22 million for the United Kingdom, and $3.63 million for Germany. JEL Classifications: C61, F12, F23, L14