March 4, 2009

Trade barriers and productivity: Empirical evidence from firm-level data

We combine our empirical results obtained from a firm-level database for European countries: The Observatory of European SMEs, with the latest findings in the heterogeneous firm literature. The aim is to obtain empirical linkages between trade costs, export activities and productivity.

In line with previous studies, we find that traditional trade policy barriers, such as import tariffs and NTBs are not the main trade barriers faced by European exporters. Instead, lack of foreign market information and networks, as well as within-country regulations are the main trade barriers.

For the European Union, we find that a common currency, expanding the single market and eliminating border controls are all perceived as important or very important by a majority of firms; but the possibility to hire workers from other EU countries is not.

Being an exporter or having a higher proportion of imported inputs increases the probability that these internal market policies are considered beneficial. On the other hand, firms with higher labour productivity decreases the probability of considering these policies relevant, while the size of the firm does not explain differences in these internal market perceptions.