50th Congress of the European Regional Science Association: "Sustainable Regional Growth and Development in the Creative Knowledge Economy", 19-23 August 2010, Jönköping, Sweden
We examine product and market entry choices of New Zealand exporters, using an enterprise level dataset which links firm performance measures with detailed data on merchandise trade. We focus our enquiry not on the broad question of what determines a firm's ability to export, but on the subsequent question: given that a firm has the ability to export, what determines the choices they make about what and where to export? We simultaneously consider firm and market level determinants of export market entry. At the firm level we find that measures of general and specific prior trade experience play an important role in determining the firm's future export activities. That is, we find evidence of path dependence within firms. We also find evidence of path dependence across firms, with entry into new export relationships reflecting demonstration effects from the export activities of other firms in the local area. In particular, firms which are located in New Zealand regions with high shares of employment in incumbent exporters to a specific country will have a probability of entering a new relationship involving that country that is 116 percent higher than those in regions with low incumbent employment shares. These results are robust to the inclusion of other determinants of exporting, including the macroeconomic performance of destination countries, exchange rate movements, and the past performance of the exporting firm.