DP11013 Shipment frequency of exporters and demand uncertainty: An inventory management approach

Author(s): Gábor Békés, Lionel Fontagné, Balázs Muraközy, Vincent Vicard
Publication Date: December 2015
Keyword(s): firms, frequency of trade, gravity, inventory model, transport costs
JEL(s): D40, F14, R41
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11013

This paper studies how exporting firms optimize their inventory management in order to adapt to the uncertainty stemming from demand volatility. We motivate our analysis with a stochastic inventory management framework. We use monthly micro data on French exporters and find that greater uncertainty is associated with lower sales volume. We decompose this effect to its two margins, the number of shipments and average shipment size to find that the number of shipments decreases more quickly as uncertainty increases which is in line with firms adjusting their inventory policy as well as their exported volume as a result of increased uncertainty. Also, uncertainty was found to matter more at distant markets where the uncertainty between firm actions and the arrival of the products is the largest.