Demand Learning and Firm Dynamics: Evidence from Exporters

Nicolas Berman (1) , Vincent Rebeyrol (2) , Vincent Vicard (3)

1 AMSE - Aix-Marseille Sciences Economiques
2 TSE-R - Toulouse School of Economics
3 Centre de recherche de la Banque de France

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 idiosyncratic demand in each market and update their beliefs as noisy information arrives. Firms update their beliefs to a given demand shock more, the younger they are. We test and empirically confirm this prediction, using the structure of the model, together with exporter-level data, to identify demand shocks and the firms’ beliefs about future demand. Consistent with theory, we also find the learning process to be weakened in more uncertain environments.

Keywords: Exports; Demand; Firm growth; Belief updating; Uncertainty

Domains: Humanities and Social Sciences; Economics and Finance; Mathematics [math]

Nicolas Berman, Vincent Rebeyrol, Vincent Vicard. Demand Learning and Firm Dynamics: Evidence from Exporters. Review of Economics and Statistics, 2019, 101 (1), pp.91-106. ⟨10.1162/rest_a_00731⟩. ⟨hal-02111159⟩