Demand learning and firm dynamics: evidence from exporters

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.

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Reference

Nicolas Berman, Vincent Rebeyrol, and Vincent Vicard, “Demand learning and firm dynamics: evidence from exporters”, TSE Working Paper, n. 17-871, December 2017.