Agglomeration economies and firm’s export intensity: evidence from Portuguese manufacturing SMEs

Abstract

Export performance is a highly debated topic in the literature, with no consensus on how to measure it or what factors determine it. Most studies divide these factors into internal and external determinants, with a focus on internal determinants. This study, however, focuses on external determinants, namely agglomeration economies such as localization and urbanization economies and export spillovers, and their impact on a firm’s export intensity. Based on a large sample of Portuguese manufacturing SMEs over the period 2010 to 2018 (191,920 firm/year observations), the estimation results through the two-stage least squares method with fixed effects strongly indicate the existence of a positive relationship between agglomeration economies, particularly localization economies and export spillovers, and export performance. These findings suggest that firms located in areas with a high concentration of other firms in the same industry and other exporting firms tend to have better export performance, which has important implications for policymakers.