Exports, Irreversible Investments and Product Market Uncertainty: The Role of Trade Intermediaries

Abstract

ABSTRACT This paper uses the theoretical underpinnings of the real options theory framework to investigate whether uncertainty affects a firms’ decision to directly export versus indirectly export and to determine whether indirect exports may offset the negative effects of uncertainty on export intensity. Using firm-level survey data of 40 emerging countries, we find that uncertainty and firms’ export intensity are negatively correlated. We also find that an increase in uncertainty increases a firms’ willingness to export through trade intermediaries. These results when considered holistically imply that trade intermediaries are able to countervail the negative effect of uncertainty on firms’ export intensity.