Internationalization choices: an ordered probit analysis at industry-level

Trade theory traces back different patterns of internationalization to heterogeneity between firms, measured both through differences in productivity levels and size. In this paper we analyze the link-between heterogeneity within sectors and internationalization choices, namely trade and foreign di-rect investments (FDI) for a large sample of countries and industries between 1994 and 2004. The focus of our paper is on the role played by average productivity level and the distribution of firms by size in explaining differences across sectors and countries in the extensive margin of internatio-nalization (i.e., the number of foreign nations where firms from a given sector and country have ex-panded abroad). By performing an ordered probit analysis, and controlling for other factors affect-ing the patterns of internationalization, we confirm that industries with higher productivity levels and with a distribution of firms shifted toward large firms are more prone to internationalize in for-eign markets through both trade and FDI. Moreover, the relative impact of average productivity and firm size on FDI is larger than that on trade. These results are robust to different measures of prod-uctivity and the distribution of firms.