Small Open Economy Firms in International Trade: Evidence from Danish Transactions-Level Data

In this paper we use a rich dataset which contains disaggregated imports and exports decisions by product and origin/destination for all Danish companies for the period 1993-2003, to provide key elements in characterizing Danish firms in international trade. Most evidence to date emanates from the U.S. or developing economies such as Columbia or Mexico. Using these studies as benchmarks, we find some similarities but also differences which we believe are representative of European-type, small open economies. We find that Danish exporters make up a fairly small fraction of the total of firms, but that this fraction is higher than in, e.g., the U.S. Firms engaged in exporting have the same positive performance characteristics found in previous studies, ie, size, capital and skilled labour intensity, labour as well as total factor productivity, and wages. But most exporter premia are significantly larger in Denmark than in the U.S. Finally, we find that trade is positively related to productivity of firms. The association between productivity and the firm’s imports of intermediate goods is particular strong.