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Chapter4
1SpilloversandExportBehavior
4.1 Introduction
Facilitating exports by domestic firms today appears as an important priority of policy
makers in developed as well as developing countries. In December 2004, the French
ForeignTradeministerarguedthat“Exportisanationalcauseforwhichthegovernment
ismobilized”. Heannounceda setofmeasuresto betaken bythe governmentin order
to “consolidate the international presence of firms already exporting, and broaden the
numberofexporters(...)”.
From the economicpoint of view, such interventions are justified in case of markets
failures,andonepossiblyimportantfailureinthecaseofexportingispositiveinforma-
tionexternalities, i.e. exportspillovers. Theunderlyingmechanismofexportspillovers
is that the export specific knowledge of firms that are experienced on foreign markets
canbenefitnearbyfirmsand allowthem to start exporting toagiven market. Theexis-
tenceofexportspillovershasbeenstudiedbyseveralpapers,buttheempiricalevidence
1This chapter is based on Koenig P. (2005), “Agglomeration and the Export Decision of French
Firms”,CRESTWorkingPaper#2005-01,submittedforpublication.
122CHAPTER4. SPILLOVERSANDEXPORTBEHAVIOR 123
is either indirect or questioned. Indeed, the identification of export spillovers requires
data on a panel of exporting firms, so as to disentangle the export spillovers from the
firm specific effect. And, using a panel of exporting firms, one will need to handle the
probable existence ofasunkexport cost, hencecontrol for thefact thatsome firmscon-
tinueto exportwhile someothers start toexport. Finally, becausespilloversare known
to decrease with geographic distance (Jaffe, Trajtenberg and Henderson, 1993), identi-
fyingthem alsorequiresdata on thepresence ofexporters atanadequatelygeographic
disaggregatedlevel.
Directevidenceofexportsspilloversisprovidedbytwopapers. Aitken,Hansonand
Harrison (1997)find thatthe probability that Mexicanplantsexport in 1986and 1989is
positively linked to the presence of multinational firms in the same state, but uncorre-
latedtoproximitytooverallexporters. Greenaway,SousaandWakelin(2004)showthat
thepresenceofmultinationalfirmsintheUKinfluencepositivelytheexportdecisionof
domesticfirmsover1993-1996. IndirectevidenceofexportspilloversisgivenbyLovely,
RosenthalandSharma(2004). Assumingthatexportingrequiresspecializedknowledge
of foreign markets, they show that headquarters of exporting firms are more spatially
concentratedthanthoseofnon-exportingfirms. More,theirresultsassessanincreasing
spatial concentration of exporters’ headquarters with the difficulty of the destination
country. Finally,twopapersunderlinetheabsenceofanyevidenceofexportspillovers.
Barrios, Görg and Strobl (2003) do not find evidence that Spanish firms benefit from
spillovers through export activity of other firms nor from multinationals’ activity be-
tween 1990 and 1998. Bernard and Jensen (2004) find no role for export spillovers on a
panelofU.S. manufacturing firms, be theyfrom nearbyexporters or from export activ-
ity from other firms in the same industry. However, unlike the existing literature, they
handletheasymmetrybetween‘starters’and‘continuers’usingthelaggedexportstatusCHAPTER4. SPILLOVERSANDEXPORTBEHAVIOR 124
ofthefirm.
Whiletheevidenceonexportspilloversappearsrathermixed,itappearsthattheem-
pirical literature has only looked for general export spillovers: In the first four papers,
theunderlyingassumption isthatthepresenceofmultinationalsordomesticexporters
impacts the variable cost of a firm at exporting and hence facilitates the overall export
decision. Bernard and Jensen (2004) assume that established exporters can reduce ei-
ther the sunk entry cost or the variable cost, but in both cases the spillovers affect the
overall exportdecision. Inthiscontext, onequestion comestomind concerningthe na-
ture, and thus the identification of export spillovers: What if export spillovers are in
fact destination specific? Indeed it appears quite reasonable to think that the relevant
information thatisabletoinfluenceafirm tostartexporting somewhere isdestination-
specific. Whenlookingforforeignmarketstosellitsproduct, amanufacturerwillwant
to learn details about the preferences of consumers and the structure of distribution
marketsabroad,whicharebothdestination-specificinformation.
In this chapter, I investigate the presence of export spillovers, precisely allowing
theseeffectstobegeneral,industryspecific,orindustryanddestinationspecific. Iusea
databaseprovidedbytheFrenchCustoms,containingindividualexportflowsbyFrench
manufacturersanddestinationcountriesbetween1986and1992. TheCustomsdataare
matchedwithfirm-levelinformationsuchastheaddressofthefirm,sales,valueadded
and number of employees. I then estimate a discrete choice model on the probability
that a firm starts to export to a country. In doing so, I handle the existence of a sunk
cost because all firms in the sample have to pay the sunk cost to enter the foreign mar-
ket. Firm fixed effects, and dummies for years and countries allow me to control for
unobserved characteristics of places, firms, years and countries. In the end, I identify
potential export spillovers by studying the effect of the presence of nearby industryCHAPTER4. SPILLOVERSANDEXPORTBEHAVIOR 125
and/or destination specific exporters on a firm’s decision to start exporting to a given
country.
Thechapterisstructuredasfollows. Insection4.2IexplainhowIgetfromtheprofit
of the firm abroad to the estimation of a logit model on the decision to start exporting.
Section 4.3 describes the sources of the data and the variables that will be used in the
estimation. I also emphasize several important aspects of the database, among which
the number of exporters per country. In section 4.4, I comment the results of the logit
estimations, explaining how we get to the preferred specification, and section 4.5 con-
cludes.
4.2 Theempiricalmodel
Inowdescribethebehaviorofafirmonforeignmarkets. Newtrademodelswithhetero-
geneousfirmsprovideuswithanadequateframeworkwithwhichtomodelindividual
firm’s export behavior. With respect to the newtrade models with representative firms
(Krugman, 1980), two new elements are added. First, firms must pay a fixed cost in
order to enter export markets. Second, firms are heterogeneous so that only a subset
of firms is able to overcome the fixed cost and start exporting. In the following I will
givedetailsonthemodelwithheterogeneousfirms,anddeveloptheexpressionforthe
profitofthefirmabroad. Thiswillallowmetodescribehowthefirm choosestosellon
foreignmarketsandmodeltheprobabilitytoexport. Beforegettingtothemodel,letus
state the two elements that a rigorous link between the theory and the empirical work
requirestodetail.
Thefirstpointreferstotheempiricalhandlingofthefixedcostatexporting. Indeed,
letusconsiderafirmifacingthedecisionofexportingornottoacountryj. ByexportingCHAPTER4. SPILLOVERSANDEXPORTBEHAVIOR 126
to that country, the firm is able to make an annual profit equal toΠ . However, if theij
firm has never exported to that country before, it must incur a sunk cost f to cover
the cost of entering the market. For each year and country, there will thus be firms
that continue and firms that start to export to that country, corresponding to firms that
have already paid the sunk cost and those that have not. This asymmetry between the
continuersandthestarters becomesaproblemfortheestimation preciselybecausethis
sunk cost is not observed: we have no information on which firms have paid the sunk
cost and which ones have not. Therefore, we must find a variable to distinguish the
continuers from the starters, because this asymmetry is in itself a potential reason for
which to remain on the export market in year t. If not controlled for, it could bias the
estimates of the firm level variables coefficients. Following Roberts and Tybout (1997),
most of the empirical literature on the export decision uses the lagged export status as
a proxy for those firms. However, as noted by Robert and Tybout (1997) and Bernard
and Jensen (2004), the use of this variable creates substantial econometric difficulties
because the identification of the spillovers also requires the specification to control for
unobservedfirmheterogeneity.
The approach chosen in this chapter and in the following is to consider only the
firms that start to export to a given market. Doing so handles the asymmetry between
the firms, because none of the firms in the remaining sample have paid the sunk cost.
Hence,thefirmsallhavethesamelaggedexportstatus,andthiselementwillnotbepart
ofthe possibledeterminantsoftheprobabilitytoexport. Ofcourse, theconsequenceof
considering the decision to start exporting is that we are left with the sunk cost in the
profitfunctionofeachfirm,andthusintheexplanatoryvariablesoftheestimatedequa-
tion. Inthefollowing, Iwillpropose awaytomodelthesunkcostthatiscoherentwith
the phenomenon I am willing to identify. Note that in concentrating on the decision+
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CHAPTER4. SPILLOVERSANDEXPORTBEHAVIOR 127
to enter a foreign market, I also focus on a phenomenon that is more likely to be influ-
encedbyexportspillovers. Indeed,onceafirmhasenoughinformationonacountryin
ordertostarttoexportthereinyeart,itislesslikelythatthefirmwillneedinformation
fromestablishedexportersinyeart 1inordertodecideonherexportbehaviortothat
country.
Thesecondpointtoclarifyc