The Mutable Geography of Firms’ International Trade

Exporters frequently change their set of destination markets. This paper proposes a new approach to identifying the underlying drivers of changes in exporters’ market decisions over time. The approach exploits information on the price and quantity of the changes in firms’ continuing markets, to uncover the microshocks that drive firms’ market changes. Applying the method to customs data from China (2000-2006) and the UK (2010-2016), I find consistent results showing that most firm- and firm-product-level market changes are driven by demand-related shocks, with a nontrivial proportion of these changes being correlated across markets.