Exporters and Importers of Services: Firm‐Level Evidence on Italy

• DOI: http://doi.org/10.1111/twec.12462
• Author: Stefano Federico,Enrico Tosti
• Date: 01 October 2017
• Published date: 01 October 2017

Exporters and Importers of Services:

Firm-Level Evidence on Italy

Stefano Federico and Enrico Tosti

Bank of Italy, Rome, Italy

1. INTRODUCTION

INTERNATIONAL trade in services is growing in importance anywhere in the world.

Improvements in information and communication technologies have increased the tradabil-

ity of many services (Baldwin, 2006). At the same time, there has also been some progress in

the liberalisation of trade in services. According to the WTO (2004), world exports of services

currently represent about 20 per cent of world exports of goods and services. Data referring

to countries for which long-time statistical series on services trade are available suggest

indeed an upward trend in the ratio of services trade on goods trade since the 1970s (Lipsey,

2009).

Despite the increasing importance of trade in services, firm-level evidence is much scarcer

than for trade in goods

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(Francois and Hoekman, 2010) and covers a relatively small number

of countries (Breinlich and Criscuolo, 2011 on UK; Walter and Dell’mour, 2010 on Austria;

Kelle and Kleinert, 2010; Kelle, 2012; Kelle et al., 2013 on Germany, Ariu, 2016; and Ariu

and Mion, 2010 on Belgium, Debaere et al., 2013 on Ireland; Haller et al., 2014 for compara-

tive evidence in four European Union countries).

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This paper contributes to this growing literature in two ways. The first contribution is to

report a set of stylised facts using detailed firm-level data on exporters and importer s of ser-

vices in Italy. We unveil new evidence on how the intensive and extensive margins of trade

in services reflect heterogeneity across firms, products and partner countries. As a relatively

large advanced economy, Italy represents an interesting object of investigation, also consider-

ing the growing importance of trade in services: the sum of exports and imports in the ‘other

services’ (services excluding travel and transport services) item equals 4.8 per cent of Italy’s

GDP in 2009 (5.3 per cent in 2008, more than one-tenth of the ratio of trade in goods to

GDP) and has risen significantly over the last two decades (Figure 1).

The authors wish to thank an anonymous referee, Andrea Ariu, Andrea Carboni, Riccardo De Bonis,

Marco Magnani, Roberto Tedeschi and participants to the LETC conference in Ljubljana, to the CEPR

conference on Globalisation, investment and services trade in Alghero and to the ECB CompNet work-

shop in Frankfurt for useful comments. The views expressed in this paper are those of the authors and

do not necessarily reflect those of the Bank of Italy.

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A large set of studies explores the various margins of trade (firms, products and countries) using data

on exporters and importers of goods (Eaton et al., 2004, 2011; Bernard et al., 2007, 2009a, 2009b; Man-

ova and Zhang, 2012; Mayer and Ottaviano, 2007 and, for Italy, Castellani et al., 2010).

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There is a wide literature using aggregate data (at the country-sector level) on trade in services (Fre-

und and Weinhold, 2002; Fillat Castej

on et al., 2008; Head et al., 2009; Christen and Francois, 2010;

Oldenski, 2012). There are also studies focusing on trade by firms in specific service sectors (Conti

et al., 2010; Temouri et al., 2013); however, it turns out that in various countries, including Italy and

Germany (Kelle and Kleinert, 2010), trade in services are not necessarily restricted to firms whose main

activity is encompassed by one of the service sectors and that the contribution of manufacturing firms to

both exports and imports of services is relevant.

©2016 John Wiley & Sons Ltd

2078

The World Economy (2017)

doi: 10.1111/twec.12462

The World Economy

The second, and perhaps more important, contribution is the analysis of the choice between

exports and foreign direct investment (FDI) for trade in services. In contrast to trade in goods,

for which this choice has been analysed in detail (Brainard 1997, Helpman et al., 2004), the

evidence for trade in services is scarce, despite the fact that the provision of services through

FDI is often much more important than the provision of services through cross-border trade

(Francois and Hoekman, 2010). Combining firm-level data on trade in services with detailed

data on foreign affiliates’ sales by country and sector, we are able to investigate how the

choice between exports and foreign affiliates’ sales is influenced by firm size and productivity

and by country characteristics. In addition, we also explore whether the determinants of the

exports–FDI choice vary among service types. This might be relevant since service sectors

typically include a heterogeneous group of activities.

Our firm-level analysis of the choice of modes of delivery in services innovates with

respect to the previous literature based on industry–country-level data (Christen and Francois,

2010, 2015; Oldenski, 2012) and to the very few existing studies based on firm-level data.

Bhattacharya et al. (2012) consider Indian firms in the software and chemical sectors and

show that more productive firms are less likely to invest abroad than export in the former sec-

tor, while the opposite is true in the latter sector. Compared to their study, our work looks at

a broader set of sectors and explores the choice between export versus FDI at a more detailed

level, controlling for service types and country characteristics. Kelle et al. (2013) provi de evi-

dence on the choice between services exports and FDI by German firms. Their work does not

however include information on firms’ productivity, which precludes them from testing the

role of firms’ characteristics on the export versus FDI decision. Moreover, they do not con-

sider how the determinants of the export versus FDI choice vary across service types.

To this end, we use a new database, derived from the Bank of Italy survey, which includes

detailed information on exports and imports of ‘other services’ (i.e. services excluding trans-

portation and travel, such as information and communication services, royalties and licences,

legal, engineering, accounting and advertising services), by type of service and partner

0 1 2 3 4 5 6

1970 1980 1990 2000 2010

Exports + Imports Exports Imports

FIGURE 1

Italy: Exports and Imports of Other Services (percentage of GDP) [Colour figure can be viewed at

wileyonlinelibrary.com]

Source: Bank of Italy. Transport and travel services are not included.

©2016 John Wiley & Sons Ltd

EXPORTERS AND IMPORTERS OF SERVICES 2079