Extract

The rapid growth in international trade flows implies that domestic market shares are shrinking as foreign firms increasingly penetrate domestic markets. Consequently, the globalization process stimulates more and more firms to enter foreign markets to explore business opportunities abroad and to compensate for reduced domestic sales. Despite many push and pull factors, many firms still do not participate in international markets, and of the majority of firms that do, only a few export products to a limited number of foreign markets (Andersson et al., 2008; Bernard et al., 2003). The fact that not all firms explore business opportunities abroad can be explained by a fixed investment required to establish an export link. A growing vein of theoretical and empirical literature focuses on the effects of fixed export market entry costs on firms’ export behavior (Bernard and Jensen, 1995; 1999; 2004; Girma et al., 2004; Greenaway and Kneller, 2005; Helpman et al., 2004; Melitz, 2003; Roberts and Tybout, 1997; Sjoholm, 1999; among others). Theoretical and empirical work in this field suggests that only the most productive firms can overcome the fixed cost of export market entry. Consequently, the most productive firms self-select into export market participation. Studies on firm-level export behavior find that firm characteristics such as size, productivity, human capital, R & D investments, and age are important determinants of firms’ export status (Baldwin and Gu, 2003; Bernard and Jensen, 1995, 1999, 2004; Clerides et al., 1998; Roberts and Tybout, 1997).