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Networks and the Dynamics of Firms' Export Portfolio: Evidence for Mexico

In this paper we use network-analysis tools to identify communities in the web of exporters' destinations. Next we use our network-based community measure as predictor of additional countries chosen by firms expanding their export destination portfolio. We defend that our network-based community measure is superior to extended gravity measures. This superiority stems from the fact that community is a revealed measure, is country-specific and can be calculated at the industry level. Using data on Mexican new exporters over the period 2003-2009, we show that the probability of choosing a new export destination multiplies almost by three if it belongs to the same community of any of the firm's previous destinations. The introduction of the network-based community variable improves the accuracy of the model up to 20% relative to a model that only includes gravity and extended gravity variables. We also show that industry-specific communities and general communities play similar roles in determining the dynamics of Mexican exporters' country portfolio.