Exports, agglomeration and workforce diversity: An empirical assessment of German establishments

Theoretical and empirical contributions on export behavior highlight the importance of firms' productivity and their levels of economies of scale on firms' export success in `foreign’ markets. In the context of agglomeration economies, firms enjoy productivity gains when they are located close to competitors or upstreaming industries and they benefit from knowledge spillovers and other positive externalities. In such a stimulating environment, firms become more prone to be exporters. Beyond the role played by externalities, firms may benefit when they employ a diverse workforce and when the interaction of distinct knowledge and related problem-solving abilities increases productivity and secures export success. In this paper, we ask whether German firms (i.e., establishments) benefit from localization and urbanization externalities and face higher export proportions. We also control for a variety of establishment characteristics and workforce diversity. For this purpose, a comprehensive German data set that combines survey data and administrative data is used. While controlling for firm heterogeneity in a fractional response model, we provide evidence that manufacturing establishments and smaller establishments (up to 250 employees) benefit most from externalities and especially from knowledge spillover. There is weak evidence supporting the benefit of workforce diversity; however, that factor could explain between-establishment variation.