growth in this way can cast considerable light on the pattern and the determinants of the export
performance. For instance, widespread entry could be taken as a signal that firms consider
future profits from foreign sales to be large and, at any rate, to outweigh the start-up costs
associated with becoming an exporter. It would therefore shed light on the size and credibility of
export incentives.
However, if sunk costs are very large, they may deter entry into foreign markets.12 Firms
that have already adapted their products to foreign markets, established packaging systems and
distribution networks and learned to deal with port authorities and custom officials will be more
inclined to export than those who have not, all other things being equal. Under such
circumstances, incumbent firms will play a paramount role in the expansion of exports.13 Entry
costs can be expected to be particularly high in Chad and Gabon, especially for the non-African
markets. Exporters are specialized in the processing of natural resources or crops for export
(cotton, wood). Most other firms produce import substitution goods, not viable for the export
market. Switching markets therefore also implies switching products, thus raising entry costs.
To cast light on this issue, we decompose nominal export growth following Sullivan,
Roberts and Tybout, 1995, and Tybout, Gauthier, Barba Navaretti and de Melo, 1997 (see the
appendix for details). We perform this exercise for Gabon only, given the limited number of
exporting firms for Chad.
11 It declines for Chad as a new firm starts exporting in 1996 (only one firm was exporting 100% of its
output in 1993) with a smaller share than the incumbent one.
12 Formal models of export behavior in the presence of start-up costs can be found in Baldwin, 1988,
Baldwin and Krugman, 1989, Dixit, 1989, Melitz, 2002).
13 However, incumbent firms may be reluctant to increase their foreign sales. Studying export booms in
Morocco, Mexico and Colombia, Sullivan, Roberts and Tybout (1995) found that net entry accounted for
more than half the total growth in exports over a five year period. Firms already exporting were either at
capacity and unable to export more, or reluctant to redirect output from the domestic market because
they faced limited demand for their particular products abroad and/or did not wish to become over-reliant
on risky foreign currency revenue sources.
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