Summary: This report sheds new light on what makes exports grow. The effects of macroeconomic conditions and policy variables on manufacturing exports have been notoriously unpredictable in the research literature. The research summarized here suggests that that unpredictability can be traced largely to neglected microeconomic characteristics of manufacturing sectors. In particular, the export response to a given stimulus is shaped by the cross-firm dispersion in unit production costs, the extent of product differentiation, and, critically, the prevalence of previous exporting experience. This research is derived from a recently completed World Bank project examining the microeconomic foundations of industrial export booms in Colombia, Mexico, and Morocco. For each country, plants were followed through time, and their decisions to begin exporting, cease exporting, or adjust their export volumes were detailed. By focusing on microeconomic characteristics, the authors highlight some features of export supply response not previously quantified. First, export booms in Colombia, Morocco, and to a lesser extent Mexico would have been more modest if large numbers of firms had not decided to break into foreign markets. Second, new exporters face significant start-up costs as they develop marketing channels, adapt products and packaging to foreign tastes, and learn bureaucratic procedures. They become exporters only when the expected profits from foreign sales are large enough to cover these costs, and are unlikely to respond to export incentives viewed as transitory.
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