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Foreign Market Conditions and Export Performance: Evidence from Italian Firm-Level Data

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  • Holger Breinlich

    ()
    (University of Essex and Centre for Economic Performance, LSE)

  • Alessandra Tucci

    ()
    (Centre for Economic Performance, LSE)

Abstract

A large body of literature in International Economics has analysed the impact of increased import competition on domestic firms. The link between firm-level exports and changes in the competitive environment on foreign markets is less well understood, however. This is despite the fact that exports make up a significant and growing share of total manufacturing production in most countries. We derive a theory-based econometric specification linking destination-specific exports to foreign demand and the degree of competitiveness or “crowdedness” of a foreign market. The latter is a summary measure of the number and productive efficiency of firms competing in a given market and the barriers impeding their access, such as tariffs or physical distance. We estimate this specification on a large sample of Italian manufacturing firms in 1992-2003 and use the results for a series of counterfactual experiments. Our findings indicate that increased numbers and efficiency of foreign firms and improvements in their access to destination markets have reduced Italian exports by around 0.2-0.4% per year. This is similar to the effects of tariff reductions for Italian firms (+0.3%/year) but smaller than the impact of higher unit labour costs (-1.4%/year) and less favourable exchange rates (-2.0%/year). By far the most important determinant of export performance was foreign demand growth, however, raising Italian exports by up to 5.3% per year or almost 60% over the sample period. Our results also indicate that China’s impact on Italian export performance is small and if anything positive. Much more important in explaining the loss of export market shares in recent years has been the relatively slow demand growth in Italy’s main export market, the EU15.

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Bibliographic Info

Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 258.

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Length: 30
Date of creation: 27 Oct 2008
Date of revision:
Handle: RePEc:csl:devewp:258

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Keywords: International Trade; Competition; Exporters; Foreign Markets;

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  1. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  2. Giorgio Barba Navaretti & Riccardo Faini & Alessandra Tucci, 2008. "Does Family Control Affect Trade Performance? Evidence for Italian Firms," CEP Discussion Papers, Centre for Economic Performance, LSE dp0896, Centre for Economic Performance, LSE.
  3. Bronwyn Hall & Francesca Lotti & Jacques Mairesse, 2006. "Employment, innovation and productivity: evidence from Italian microdata," IFS Working Papers, Institute for Fiscal Studies W06/24, Institute for Fiscal Studies.
  4. Joao Santos Silva & Silvana Tenreyro, 2005. "The Log of Gravity," CEP Discussion Papers, Centre for Economic Performance, LSE dp0701, Centre for Economic Performance, LSE.
  5. Mullahy, John, 1998. "Much ado about two: reconsidering retransformation and the two-part model in health econometrics," Journal of Health Economics, Elsevier, Elsevier, vol. 17(3), pages 247-281, June.
  6. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(517), pages F134-F161, 02.
  7. Anne-Célia Disdier & Keith Head, 2004. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," Development Working Papers, Centro Studi Luca d\'Agliano, University of Milano 186, Centro Studi Luca d\'Agliano, University of Milano.
  8. Redding, Stephen & Venables, Anthony J., 2003. "South-East Asian export performance: external market access and internal supply capacity," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 404-431, December.
  9. James R. Tybout, 2001. "Plant- and Firm-Level Evidence on "New" Trade Theories," NBER Working Papers 8418, National Bureau of Economic Research, Inc.
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