Decomposing service exports adjustments along the intensive and extensive margin at the firm‐level

Abstract Using a panel data set of Austrian service exporting firms this paper examines the determinants of service exports at the firm/destination country level. We implement a random effects Heckman sample selection firm‐level gravity model as well as a fixed effects Poisson model. Expected firm‐level service exports are decomposed into the intensive and extensive margins of adjustment as a response to counterfactual changes. We find market demand to be a key determinant. Results also suggest high service export potentials due to regulatory reform in partner countries within the EU. Adjustments at the extensive margin only play a marginal role. Increases in firm size as well as changes in distance related costs are most effective in developing new export relationships in services.