Where Do Firms Export, How Much, and Why?

The empirical finding that exporting firms are more productive on average than non-exporters has provoked a large theoretical literature based on models such as Melitz (2003), where more productive firms are more likely to overcome costs associated with trade. This paper provides a systematic empirical assessment of the Melitz framework using a unique Irish dataset that includes information on destinations and firm characteristics such as productivity. We find a number of interesting deviations from the model’s predictions including a high degree of unpredictable idiosyncratic participation in export markets by firms, a relatively weak positive correlation between the extent of export participation and export sales, and a limited role for productivity in explaining firm exporting behavior. We illustrate the effect of firm heterogeneity on gravity regressions of aggregate trade flows and show how past exporting to a particular market has a strong impact on the current probability of exporting there. E-mail: [email protected]. We would like to thank Forfás for providing the data used in this paper. The views expressed in this paper are our own, and do not necessarily reflect the views of the Central Bank and Financial Services Authority of Ireland or the ESCB. E-mail: [email protected]. WHERE DO FIRMS EXPORT, HOW MUCH, AND WHY? 1