International Trade and Domestic Competition: Evidence from Belgium

Abstract

We investigate the effect of domestic market competition on firmlevel export intensity. We employ a comprehensive dataset of Belgian firms from [2005][2006][2007][2008], when the fall in the number of firms engaged in trade was accompanied by a growing amount of transactions. The resulting increase in the domestic concentration of Belgian firms has sparked numerous debates, since the direction of causality between domestic market structure and export performance is unclear. We apply the fractional logit estimator and control for both self selection and simultaneity bias. We find that a positive linkage exists between the level of competition and export intensity.JEL Classification: C23, F14, L16, L40.

Reaching up and reaching out: The impact of competition on firms’ productivity and export decisions

“…Similar results are found in the export intensity equations, indicating that with increasing firm size, firms can export more. Our results for the export propensity and intensity are largely consistent with the literature (Aitken, Hanson, & Harrison, ; Bernard & Jensen, ; Bramati et al, ; Roberts & Tybout, ; Rodríguez & Rodríguez, ).…”

“…In Tables and , consistently we find a positive effect on the fraction of exporters in an industry (export fraction) on export propensity and export intensity in all the estimated models. The proportion of exporters in an industry measures the spillover effect of other exporting firms in the same industry (Bramati et al, ). Our results imply that the more exporters there are in an industry, the greater the likelihood for other firms in the industry to export, and also to export more due to the spillover effect.…”

“…We measure firms’ export decision in two ways: export propensity and export intensity (Bernard & Jensen, ; Bramati et al, ; Hiep & Nishijima, ; Poddar, ; Rodríguez & Rodríguez, ). Export propensity ( S ) is a dummy variable that takes the value 1 if a firm exports and 0 otherwise.…”

“…Other empirical studies demonstrate that domestic competition positively impacts firms’ export decisions (propensity and intensity). Evidence is given by Sakakibara and Porter () using data from Japan, Kostevc () using data from Slovenia, Clougherty and Zhang () using data from 19 countries, and Bramati et al () using data from Belgium. Regarding foreign competition, as Kostevc () finds that it positively influences export growth, Abraham and Van Hove () show that foreign competition from China negatively affects the export market share of OECD countries…”

“…It is likely for firms that have their productivity growth enhanced as a result of market competition to generate output growth and improvements in their export performance. In relation to competition, we can summarize the theoretical underpinnings of firms exporting decisions into two main hypotheses: the national champion and the domestic rivalry (Bramati, Gaggero, & Solomon, ; Clougherty & Zhang, ). The adherents of the national champion hypothesis contend that when competition is low, national firms enjoy economies of scale, which helps them increase their profits and also increase their share in the export market (Chou, ; Krugman, 1984).…”