Article

Demand learning and firm dynamics: evidence from exporters

Nicolas Berman, Vincent Rebeyrol, and Vincent Vicard

Abstract

This paper provides direct evidence that learning about demand is an important driver of firms' dynamics. We present a model of Bayesian learning in which firms are uncertain about their idiosyncratic demand in each of the markets they serve, and update their beliefs as noisy information arrives. Firms are predicted to update more their beliefs to a given demand shock, the younger they are. We test and empirically confirm this prediction, using the structure of the model together with exporter-level data to identify idiosyncratic demand shocks and the firms' beliefs about future demand. Consistent with the theory, we also find that the learning process is weaker in more uncertain environments.

Keywords

firm growth; belief updating; demand; exports; uncertainty;

JEL codes

  • D83: Search • Learning • Information and Knowledge • Communication • Belief
  • F14: Empirical Studies of Trade
  • L11: Production, Pricing, and Market Structure • Size Distribution of Firms

Reference

Nicolas Berman, Vincent Rebeyrol, and Vincent Vicard, Demand learning and firm dynamics: evidence from exporters, The Review of Economics and Statistics, vol. 101, n. 1, March 2019, pp. 91–106.

Published in

The Review of Economics and Statistics, vol. 101, n. 1, March 2019, pp. 91–106