Decomposing Firm-level Sales Variation

Abstract

We measure the contribution of \u85rm-speci\u85c e¤ects to overall sales variation within a destination and \u85nd it remarkably low. Our empirical decomposition is structurally motivated by a heterogeneity model of exporting involving destination-speci c, \u85 rm-speci\u85c, and \u85rm-destination-speci\u85c latent e¤ects with incidental truncation. We use a highly detailed dataset with exports by products and destina-tions for all Danish manufacturing \u85rms. We \u85nd the contribution of \u85rm-speci\u85c heterogeneity to within-destination sales variation varies greatly across HS6 prod-ucts, and that for the median product it drives 31 % of the sales variation. When we remove \u85rst-time exports from our sample, the median value increases to 40%, implying that \u85rm-destination-speci\u85c e¤ects are most important the \u85rst year. We conclude that while \u85rm-speci\u85c productivity can account for some of the variation, the majority is explained by \u85rm-destination-speci\u85c heterogeneity sources such as rmdestination-speci c demand