Firms' Heterogeneity and Internationalisation Choices: only productivity matters? Evidence from a sample of Italian Manufacturing Firms.

Abstract: This paper provides evidence on the relative importance of productivity and other firm-level characteristics in affecting firms’ internationalisation choices. By using detailed qualitative and quantitative information for a large sample of both large and small-medium sized Italian companies we identify firms engaged in international activities through exports and/or horizontal FDIs and estimate different measures of Total Factor Productivity (TFP). This allows us to provide further empirical support to the theoretical prediction of a productivity ranking among domestic firms, exporters, and multinational firms (MNEs). We then estimate multinomial logit models with both TFP and other firm-level characteristics (size, innovative activity, age, ICT adoption, labour composition, group membership, and location in an industrial district) as regressors in order to shed some light on the interplay of all these variables in affecting firms' globalisation choices. We find that i) productivity remains an important driver of globalisation choices although the inclusion of additional firm-level characteristics (notably size, innovative activity, and labour composition) lowers its impact; ii) the other covariates appear to have a direct effect (i.e: not through productivity) on globalisation. These findings support the idea that old and new theories highlight different – only partially overlapping – factors affecting firms’ choice to expand their activities abroad. Keywords: FDI, Productivity, Export, Firm Heterogeneity, Multinomial Logit JEL Classification: F14, F23