Export Failure and Its Consequences: Evidence from Colombian Exporters*
Exporters pay high fixed costs to enter foreign markets, yet the majority will not export beyond one year. What happens to these exporters after they fail abroad? For these firms, exporting likely resulted in heavy profit losses. Despite this, trade literature often views exporting as a harmless exercise based on a simple cost benefit analysis of foreign profits. This rationale ignores the differential effect export failure may have on financially constrained firms. I develop a heterogeneous firm model with financial constraints and marketing costs to show how export failure can: 1) make the liquidity constraint more likely to bind, 2) force financially constrained firms to limit marketing expenditure and, hence, decrease domestic sales, and 3) induce some firms to default. Using Colombian firm level data and three identification techniques (DD, PSM, and IV) I provide empirical support for these propositions. I find evidence that export failure has a differential impact on financially constrained firms. These firms have a higher probability of going out of business, lower domestic revenue, and lower domestic revenue growth after exporting; the findings are robust to comparisons with similar successful exporters and even non exporters. JEL Classification: F10, F14, F36, G20, G33.