TY  - GEN
AB  - This paper provides evidence that learning about demand is an important driver of firms' dynamics. We present a simple model with Bayesian learning in which  firms are uncertain about their idiosyncratic demand parameter in each of the markets they serve, and update their beliefs as noisy information arrives in each period. The model predicts that firms update more their beliefs following a new demand shock, the younger they are. To test this learning mechanism, we make use of a specific feature of exporter-level data which contains both the values and the quantities sold by a given firm for the same product in different destination markets. This allows us to derive a methodology that identifies separately the demand shocks faced by the firms and their beliefs about future demand. We find strong support for our main prediction: The updating process appears especially strong in the first years after entry. However, the bulk of accumulated knowledge is lost during short periods of exit. Second, we consider implications of this prediction for firm growth rates and survival. Consistent with the learning model, we find that: (i) the absolute value of the mean growth rate for firms' beliefs decreases with age, as does the variance within cohorts; (ii) exit probability decreases with firms' beliefs and the demand shock the firm faces. Further, demand shocks trigger more exit in younger cohorts.
AU  - Berman, Nicolas
AU  - Rebeyrol, Vincent
AU  - Vicard, Vincent
CY  - Geneva
DA  - 2015
DA  - 2015
DO  - 10.71609/iheid-6qdj-3s53
DO  - doi
ID  - 291597
L1  - https://repository.graduateinstitute.ch/record/291597/files/IHEIDWP03-2015.pdf
L1  - https://repository.graduateinstitute.ch/record/291597/files/IHEIDWP03-2015.pdf?subformat=pdfa
L2  - https://repository.graduateinstitute.ch/record/291597/files/IHEIDWP03-2015.pdf
L2  - https://repository.graduateinstitute.ch/record/291597/files/IHEIDWP03-2015.pdf?subformat=pdfa
L4  - https://repository.graduateinstitute.ch/record/291597/files/IHEIDWP03-2015.pdf
L4  - https://repository.graduateinstitute.ch/record/291597/files/IHEIDWP03-2015.pdf?subformat=pdfa
LK  - https://repository.graduateinstitute.ch/record/291597/files/IHEIDWP03-2015.pdf
LK  - https://repository.graduateinstitute.ch/record/291597/files/IHEIDWP03-2015.pdf?subformat=pdfa
N2  - This paper provides evidence that learning about demand is an important driver of firms' dynamics. We present a simple model with Bayesian learning in which  firms are uncertain about their idiosyncratic demand parameter in each of the markets they serve, and update their beliefs as noisy information arrives in each period. The model predicts that firms update more their beliefs following a new demand shock, the younger they are. To test this learning mechanism, we make use of a specific feature of exporter-level data which contains both the values and the quantities sold by a given firm for the same product in different destination markets. This allows us to derive a methodology that identifies separately the demand shocks faced by the firms and their beliefs about future demand. We find strong support for our main prediction: The updating process appears especially strong in the first years after entry. However, the bulk of accumulated knowledge is lost during short periods of exit. Second, we consider implications of this prediction for firm growth rates and survival. Consistent with the learning model, we find that: (i) the absolute value of the mean growth rate for firms' beliefs decreases with age, as does the variance within cohorts; (ii) exit probability decreases with firms' beliefs and the demand shock the firm faces. Further, demand shocks trigger more exit in younger cohorts.
PB  - The Graduate Institute of International and Development Studies
PP  - Geneva
PY  - 2015
PY  - 2015
T1  - Demand learning and firm dynamics: evidence from exporters
TI  - Demand learning and firm dynamics: evidence from exporters
UR  - https://repository.graduateinstitute.ch/record/291597/files/IHEIDWP03-2015.pdf
UR  - https://repository.graduateinstitute.ch/record/291597/files/IHEIDWP03-2015.pdf?subformat=pdfa
Y1  - 2015
ER  -