THE DECISION TO EXPORT IN COLOMBIA - AN EMPIRICAL-MODEL OF ENTRY WITHSUNK COSTS

Recent theoretical models of entry predict that, in the presence of su nk costs, current market participation is affected by prior experience . This paper quantifies the effect of prior exporting experience on th e decisions of Colombian manufacturing plants to participate in foreig n markets. It develops a dynamic discrete-choice model of exporting be havior that separates the roles of profit heterogeneity and sunk entry costs in explaining plants' exporting status. Stink costs are found t o be significant, and prior export experience is shown to increase the probability of exporting by as much as 60 percentage points.