Firms' exporting and importing activities: is there a two-way relationship?

Abstract

The literature on firm heterogeneity and trade has highlighted that most trading firms tend to engage in both importing and exporting activities. This may be due to some common sunk costs or to a true state dependence. This paper provides some evidence that helps sort this issue out. Using firm level data for a group of 27 Eastern European and Central Asian countries from the World Bank Business Environment and Enterprise Performance Survey (BEEPS) over the period 2002-2008, we estimate a bivariate probit model of exporting and importing. The main finding is that there is a positive correlation between import and export at the level of the firm, but after controlling for size (and other firm level characteristics) importing have a positive effect on exporting, but exporting to not increase the probability of importing. The evidence is thus consistent with the presence of common sunk costs and with a one-way link between importing and exporting. The positive effect of import on export is mainly due to an increase in firm productivity and product innovation.Exports, Imports, Firm heterogeneity, Eastern European and Central Asian countries