The supplier network of exporters: Connecting the dots
Working Paper N° 296
The capability of domestic firms to compete on foreign markets is an important indicator of a country’s economic strength and a target of many economic policies. We know that only a small share of producers sells on foreign markets and that these firms perform in many aspects differently from their purely domestic counterparts. Recent research, however, highlighted that many exporters are just trade intermediaries that do not produce the exported good and, importantly, the capability to export is supported by availability of cheap and high-quality inputs. This suggests that in order to understand an economy’s involvement in international trade and the characteristics of firms that produce for foreign markets we need to look beyond the firms that own a good when it crosses the border and acknowledge that many firms are engaged in international trade indirectly. This paper fills the gap by offering the first glimpse of the domestic supplier network that underpins exports production. To this purpose we use a new and unique dataset of yearly transactions between all domestic firms in the Belgian economy and augment it with data on firms’ characteristics and their international transactions. We show that the current picture of firms in international trade indeed misses an important share of firms. While we confirm that direct exporters are the best performing firms, we also show that they are supported by suppliers that are very good performers themselves.
In fact, we find evidence of a performance premium that is increasing in the proximity to foreign demand.