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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 29, No. 3, pp.379-409
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2016
Received 16 Oct 2015 Revised 25 Jan 2016 Accepted 03 Feb 2016

Differential Impact of Uncertainty on Exporting Decision in Risk-averse and Risk-taking Firms: Evidence from Korean Firms

Haeng-Sun Kim
Haeng-Sun Kim, Associate Research Fellow, Korea Institute of Local Finance, Seoul, South Korea, Tel: 02-2071-2753, Fax: 02-2071-2777 haengsunkim@kilf.re.kr

JEL Classification: D81, F14, G32

Abstract

Most existing literature examining the links between firm heterogeneity and entry into exporting assumes that firms are risk neutral. In this study, we relax this strict assumption that firms are risk neutral and introduce different attitudes of firms toward risk as an additional source of firm heterogeneity. In particular, we examine how risk attitude changes the effect of uncertainty on the decision of a firm to export considering the different types of uncertainty faced by the firm, namely, firm-specific and macroeconomic. Our analysis yields two interesting findings. First, firm-specific uncertainty discourages risk-averse firms from participating in foreign markets more than risk-taking firms. One possible explanation for this finding is that risk-averse firms are more cautious in export market participation when firm-specific uncertainty increases. Second, we find that riskaverse firms are less likely to decrease their export market participation when responding to macroeconomic uncertainty. Thus, risk-averse firms are more likely to diversify their domestic risk by participating in foreign markets in responding to macroeconomic uncertainty.

Keywords:

Exports, Risk aversion, Uncertainty, Firm heterogeneity

Acknowledgments

The author acknowledges the support from INCAS project funded by RISE Marie Sklodowska-Curie Actions under the European commission's H2020 Programme.

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