Broadening or jumping? An analysis of the first export market of European Union firms

Abstract

This paper explores the export activities of international firms from seven European countries with a special focus on the neighbourhoods of Europe, where 16 countries have been included in the neighbouring policy. Using a detailed dataset of the internationalisation activities of nearly 15,000 companies, we focus on the best export destinations of European Union firms. In 2008, only 6% of exporters had at least one neighbouring country in their top three export destinations. We subsequently model the export/no-export activity of each firm and the location of the first export destination by means of a nested logit model and find that this process is driven primarily by geography. No reduction (or even an increase) of the strength of the distance effect can be detected for a firm when exporting outside Europe to nearby countries, meaning that European Union firms do not have any particular advantage in exporting their goods in countries near their borders with respect to all the other possible destinations in the world. The ‘repulsive force’ of distance is alleviated only when moving outside of neighbourhoods where the size of the destination market becomes stronger.