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Firms’ heterogeneity and margins of trade under uncertainty

ABSTRACT This study provides empirical evidence for the impact of uncertainty on the firms' export decisions. In the heterogeneous firms model, the firms' export decisions are affected by uncertainty and the firm’s risk-taking behavior along with productivity and the firms' size. The estimates show that risk-taking firms have higher probability of exporting relative to risk-neutral and risk-taking firms at 91 percent. For relatively small-sized firms, the risk-taking behavior does not make much difference in terms of probability of exporting. However, there is considerably larger impact of increase in the firm size on the probability of exporting in case of risk-taking firms. The firm-specific uncertainties also negatively affect the intensive margins of trade; consequently, firms spread their costs of adjustment over more than one period instead of making adjustments at once.