A Small Country Perspective
Chapter 3: What explains the export performance of firms in the defence industry?
As noted in chapter 1, a recent strand of research in international economics has started to investigate the factors that may explain why only a small number of firms within each sector are able to export their products to foreign markets whereas most other companies in the same industry are not able to do so. The present chapter extends this strand of research by focusing on one specific sector that has so far received only limited attention in the international economics, innovation and business literature: the defence industry. What are the factors explaining the export performance of firms in the defence sector, and how do they differ from the general framework that is typically described in the firm heterogeneity and international trade literature? The question motivating this chapter is not only interesting from an academic point of view, but is also highly relevant for policy. In fact, as noted in the previous chapters, EU Directive 2009/81/EC intends to provide a new framework for policy interventions in the European defence market by limiting the extent of national protection, extending cooperation and cross-border trade within the EU, and eventually introducing a higher degree of market liberalization (Hartley, 2008; Kollias, 2008; Edwards, 2011). The future scenario of openness and liberalization certainly represents an important change for firms in the defence industry.
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