Prof. Leif Danziger, Ph.D.

Export Destinations and Firm Productivity

It is well-established that more productive exporters tend to serve more foreign destinations. One plausible explanation is that most exporters serve the most favourable destinations while only the most productive exporters also serve the less favourable destinations. However, careful examination of firms’ export behaviour casts doubt on this explanation. Indeed, exporters do not enter export markets according to a common hierarchical order, suggesting that export destinations are not easily ranked by their attractiveness. A common workaround is to appeal to additional firm-country heterogeneity in market sizes and trade costs.

In his current research Leif Danziger together with Eliav Danziger (Simon Fraser University) offer an alternative explanation for the positive relationship between firm productivity and the number of export destinations. They show that an otherwise standard trade model augmented with uncertainty obviates the need for any additional heterogeneity to explain the increasing relationship between a firm’s productivity and the number of its export destinations. The augmented model can also explain other features of the data, such as the negative correlation between home and foreign sales.

All firms face uncertainty, whether about demand for their goods, production costs or a plethora of other economic conditions. Beyond these uncertainties, exporters may face yet more uncertainty due to unpredictable transportation costs and unstable exchange rates. Among other things, Mr Danziger’s research reveals that in sectors where shocks across foreign destinations are less correlated, exporting firms tend to export to more destinations. Also, in sectors with riskier home-country shocks, firms tend to export to more destinations as compared with firms in sectors with less risky home-country shocks.

Mr Danziger’s current research focuses on firms’ export strategies. During his stay in Munich, he will deliver three CES Lectures entitled: “The Choice of Export Destinations”.

Leif Danziger is a Professor of Economics at Ben-Gurion University. His PhD is from Yale University. He is a Fellow of the CESifo Research Network.