Economics Commons^™

The paper tests the role of agglomeration effects on the export decision of services firms. Recent theories on trade with heterogeneous firms predict that export participation goes along with sunk market-entry costs. Only the more productive firms will be able to overcome these sunk costs. This leads to a process of - ex ante - self selection. These predictions are tested for the services industry, with due account for the possible role of agglomeration effects in large-city areas. Standard empirical tests of the new trade models consistently find productivity-based ex ante self selection by exporters, and this effect is mostly …