Decomposing service exports adjustments along the intensive and extensive margin at the firm‐level

Abstract

Using a panel data set of Austrian service exporting firms this paper examines the determinants of service exports at the firm/destination country level. We implement a random effects Heckman sample selection firm‐level gravity model as well as a fixed effects Poisson model. Expected firm‐level service exports are decomposed into the intensive and extensive margins of adjustment as a response to counterfactual changes. We find market demand to be a key determinant. Results also suggest high service export potentials due to regulatory reform in partner countries within the EU. Adjustments at the extensive margin only play a marginal role. Increases in firm size as well as changes in distance related costs are most effective in developing new export relationships in services.

Trading firms and trading costs in services: Firm-level analysis

“…In addition, such regulation also reduces the value of individual export sales of these firms to the country. Christen et al (2013) find similar results for Austrian firms. Firm-level data from Belgium has also been used by Ariu (2016b) to study the "great trade collapse".…”

“…In previous literature, Christen et al (2013) find evidence that more stringent economy-wide product market regulation deters services exports by services firms, but does not have a significant bearing on services exports by manufacturing firms. Note: The numbers indicate the discount on the ad valorem tariff equivalent for firms exporting both goods and services.…”