The Determinants of Service Export Behaviour in Italian Non-Financial Firms

Abstract

This paper analyses the main drivers of Italian service exports using firm-level data. A gravity equation, augmented with firm characteristics and FDI variables, is estimated using a panel of Italian exporters constructed by merging two datasets, the first on international trade in services and the second on FDI relationships, both used to compile the Italian balance of payments. After presenting a formal justification for the presence of FDI variables in the gravity equation, the model is estimated using a panel composed of non-financial firms exporting services other than travel, transport and processing in the period from 2013 to 2018. The econometric analysis shows that FDI is, among the standard drivers of exports (firm size and productivity, foreign demand, trade costs), a significant variable that positively affects Italian firms’ exports of services, pointing to complementarity rather than to substitution. This evidence suggests that a significant component of trade in services includes intra-group transactions.