Foreign Market Conditions and Export Performance: Does 'Crowdedness' Reduce Exports?

This paper analyzes the link between firm exports and the competitive environment in foreign markets. We derive a theory-based econometric specification linking destination-specific exports to foreign demand and the degree of 'crowdedness' of foreign markets. The latter is a measure of the number and efficiency of firms competing in a given market and the barriers impeding their access. We estimate this specification on a large sample of Italian manufacturing firms between 1992 and 2003 and use the results for counterfactual experiments. We find that increases in the crowdedness of foreign markets have reduced Italian exports by around 0.2%-0.3% per year. However, other factors such as higher unit labor costs and weak demand growth in Italy's main export market (the EU15) have been much more important in explaining Italian export performance. Our results also indicate that China's impact on Italian exports is small and if anything positive.