The Importance of Sunk Costs of Exporting in the Sub-Saharan Africa

Abstract: Foreign trade is an important part in Africa’s internationalization process. In order to assess the entrepreneurial possibilities in Sub Saharan Africa, one can look at firm’s probability of entering the export market. The aim of this paper is to examine the importance of sunk costs of exporting for Sub Saharan African firms. This is done by assessing the importance of past export performance on today’s export participation using a binary choice model. A second aim is to compare the relative importance of sunk costs of exporting for African countries with results found from studies using firm level data on more advanced countries. By using a firm level panel dataset on firms in manufacturing sectors this paper finds that the importance of sunk cost of exporting is on average 16% for the Textiles & Garment sector, 20% for the Food & Bakery sector and 20% for the Metals, Machinery & Chemical sector. We find that this is low compared to more advanced countries and that the productivity and size of the firm is generally of more importance for exporting than previous experience.