True Versus Spurious State Dependence in Firm Performance: The Case of West German Exports
23 Pages Posted: 17 Dec 2004 Last revised: 15 Aug 2008
Date Written: 2004
This paper analyzes the persistence of firms' exporting behavior in a panel of West German manufacturing firms. Dynamic binary choice models allow us to distinguish between true and spurious state dependence in firm performance. Using random effects models as well as a recent fixed effect approach which imposes few restrictions on unobservables, we find robust evidence of state dependence in the current export status of firms. Unobserved permanent firm heterogeneity (spurious state dependence) is found to be less important than suggested by earlier studies. The existence of true state dependence in exports has direct economic policy implications: if policy successfully turns non-exporters into exporters, the effect is likely to be lasting.
Keywords: State dependence, export activity, dynamic binary choice models
JEL Classification: C23, D21
Suggested Citation: Suggested Citation