FIW Seminar in International Economics: Decomposing Services Exports Adjustments along the Intensive and Extensive Margin at the Firm-Level

Using a comprehensive and unique data set of Austrian service exporting firms provided by the Oesterreichische Nationalbank this paper empirically examines the determinants of service exports at the firm and destination country level. Based on a Heckman sample selection gravity model, the paper introduces a new approach to decompose expected firm-level services exports into changes at the intensive and the extensive margins of adjustment as a response to counterfactual changes in exogenous variables. Specifically, we consider several counterfactual scenarios including the (hypothetical) reduction of trade costs, changes in destination market size and enhanced firm productivity. Our results suggest that export market growth and a reduction in distance related trade costs exert the relative strongest impact on the entry into new markets. Policies aiming at promoting firm productivity also have the potential to broaden the exporter base and play an important role for trade deepening.