Firms do not choose randomly their export market. Instead, empirical evidence suggests the existence of a geographic bias in the choice of export destination by firms. Firms tend to enter markets that are close to their existing export destinations. Chaney (2014)1 refers to this as the indirect search for new contacts, and this systematic geographic bias has been now documented by several authors (Albornoz et al. 20112, Defever et al. 20113, Lawless 20134). While the role of geography is well understood (economies of scale in the shipments, presence of a distribution network), little has been said about the linguistic (or the cultural) proximity across the firm's various export markets.
In this paper, I argue that linguistic proximity (a proxy for the cultural proximity of the different export markets) can explain the dynamics of entry into new markets. Cultural proximity should matter for several reasons. First, I investigate this by using French firm-level data on the exports of differentiated products and the exports of professional and business services. I look at the probability for a given firm to enter a new market, based on the characteristics this market shares with the previous firms' export destinations. I find that conditional on geographic proximity, cultural proximity positively affects the entry of firms into new markets. I find evidence that both proximities matter more as firms export to more markets, as suggested by Chaney (2014)1. Finally, I find evidence that while geographic proximity matters relatively more than cultural proximity for the exporters of differentiated products, both factors matter equally when firms are exporting professional and business services.
Chaney, T. (2014). The network structure of international trade. American Economic Review, vol.104 (10) ↩
Albornoz, F., H. F. Calvo Pardo, G. Corcos, and E. Ornelas (2012). Sequential exporting. Journal of International Economics 88 (1), 17-31. ↩
Defever, F., B. Heid, and M. Larch (2011). Spatial exporters. CEP Discussion Papers dp1100. ↩
Lawless, M. (2013). Marginal distance: Does export experience reduce firm trade costs? Open Economies Review, 1-23. ↩