Psychic Distances and the Export Success of Born Globals Firms

Abstract

This paper investigates how psychic distance from export markets affects internationalization success. Using CORFO (Corporation for the Promotion of Production) data in Chile, two-stage Probit regression models are estimated. The results show that companies that decide to sell at a high psychic distance would have a better chance of success. However, previous experience in ventures would be important when deciding to export over long psychic distances. Thus, policymakers should take those factors into account when making decisions. Some limitations of this study are related to use cross section data, overlooking possible endogeneity problems. Nevertheless, and unlike other previous works, the methodology used tries to correct the inherent selection bias present in the topic investigated. The outcome of this work is important to encourage Chile's born globals firms to focus their operations on the most attractive and distant international markets.