Social and Behavioral Sciences Commons^™

Even though the Netherlands was the world’s sixth largest exporter in 2009, the majority of Dutch firms does not engage in international trade at all, possibly because they are unable to cover the costs to enter specific foreign markets. What are these costs that limited the internationalisation of Dutch firms? Using detailed and unique transaction-level data on export patterns of about 1,200 large Dutch firms in the years 2006-2007, this research opens the black box of market entry costs. First, we find that more productive firms are both more likely to engage in exports (extensive margin) and to export larger …

The paper tests whether recent theories of international trade with heterogeneous firms can explain the export patterns in Dutch firm- and plant- level data in manufacturing and services. Recent trade models with heterogeneous firms predict that the export decision of firms is affected by sunk entry costs in foreign markets, with only the most productive firms self-selecting into exports. We test a latent variable model of the export decision by probit regressions and standard OLS panel regressions. Our results support the self-selection prediction. The process further appears to be conditioned by scale effects, market structure and multinational affiliation. Regarding alternative …