Predicting Exporters with Machine Learning

TL;DR

This paper uses machine learning to predict how close firms are to becoming exporters, demonstrating high accuracy and potential applications in trade promotion and financial planning.

Contribution

It introduces a novel application of machine learning, specifically BART-MIA, to predict export potential of firms with high accuracy using financial data.

Findings

BART-MIA achieves up to 0.90 accuracy in predictions.

Predictions are robust across different definitions of exporters.

Exporting scores can inform trade promotion and financial resource allocation.

Abstract

In this contribution, we exploit machine learning techniques to evaluate whether and how close firms are to becoming successful exporters. First, we train and test various algorithms using financial information on both exporters and non-exporters in France in 2010-2018. Thus, we show that we are able to predict the distance of non-exporters from export status. In particular, we find that a Bayesian Additive Regression Tree with Missingness In Attributes (BART-MIA) performs better than other techniques with an accuracy of up to 0.90. Predictions are robust to changes in definitions of exporters and in the presence of discontinuous exporting activity. Eventually, we discuss how our exporting scores can be helpful for trade promotion, trade credit, and assessing aggregate trade potential. For example, back-of-the-envelope estimates show that a representative firm with just below-average exporting scores needs up to 44% more cash resources and up to 2.5 times more capital to get to foreign markets.