Exports of firms and diversity: an empirical assessment for Germany

Abstract

The international trade literature highlights the importance of firm productivity and economies of scale on the firm’s international export success. In the context of agglomeration economies, firms enjoy productivity gains when they are located close to related firms and they gain from knowledge spillovers and other positive externalities. They may also benefit from a potentially large supply of diverse workers that possess distinct knowledge and problem-solving skills. In such environments, firms may be more prone to export. In this paper, we employ a comprehensive German data set that combines survey and administrative data. We ask whether German firms (i.e., establishments) export more as a result of localization and urbanization externalities, and labor market pooling associated with workforce diversity, while controlling for a variety of establishment characteristics. Using a fractional response model, we provide evidence that manufacturers and smaller establishments benefit more from externalities and especially from knowledge spillovers. There is less evidence supporting the benefit of workforce diversity; however, that factor may be associated with between-establishment variation.