Big is Beautiful when Exporting

This paper starts out from the observation that the export ratios of firms (export to sales ratios) vary greatly among firms and that they are systematically higher for larger exporters. We relate the difference in export ratios to firm-level differences in transport costs. In accordance with the data, we assume that freight rates are a function of firm-level export volumes. We test our model using Japanese manufacturing firm-level data. We first estimate the elasticity of the freight rate with respect to firm-level export volumes at the sector level. When feeding these estimates back into the model, it can explain more than 50% of the variation in firm-level export ratios.