The Role of Foreign Networks for Trade in Services : Firm-Level Evidence

• This study provides novel evidence of a positive and significant influence of firm investment into foreignnetworks – through the hiring of foreign-born workers in the firm – on both the propensity to export services as wellas the intensity in exports. Because trade barriers are higher for services than for goods, and since trade in services ismore sensitive to informal trade barriers, firm investment in access to foreign networks could in particular help toincrease services exports. Investment in foreign links could benefit the overall access in the same cluster of firms,which, however, lowers the incentive for the individual firm to invest in such linkages itself. This study formalizesthis idea that that the world can become ‘smaller’ through firms’ strategic trade-related decisions. We investigatewhether firm investment to obtain access to foreign networks impacts exports of services by estimating a fixedeffects panel model on a comprehensive firm-level dataset for Sweden and looking in particular at investment inlinks through the hiring of immigrants. Instrumental variable estimation mitigates the endogeneity concern. Inaddition to the key finding, our results demonstrate that weaker export experience enhances the role of investmentinto foreign networks in terms of propensity to export. As an ancillary result, we find that the skill level of foreignbornworkers and the time elapsed since immigration also impact the degree to which firms can utilize foreign-bornpersonnel as an investment to gain access to networks abroad. Our results provide a new understanding of how firmscan overcome trade barriers that specifically impede services by investing in foreign networks, for example, throughthe hiring of foreign-born personnel. In this, our study emphasizes the need for policymakers to increase labormarket participation among the foreign-born population as to way to promote internationalization in terms ofservices exports.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Nyckelord

Networks

firm trade

services

immigrant workers

information

trust

Publikations- och innehållstyp

vet (ämneskategori)

ovr (ämneskategori)