DEVELOPMENT STUDIES WORKING PAPERS

Recent literature stresses the importance of low productivity as a barrier to the international expansion of firms. But financial frictions or adverse employment conditions at home could matter as well. In this paper, we present new empirical evidence on the importance of these factors. We use a detailed micro-level dataset of German firms which simultaneously provides information on exports, financial frictions, and labor market conditions. Our paper has three main findings. First, in line with earlier literature, we find a positive impact of size and productivity on firms ’ export activities. Second, financial constraints affect the entry into foreign market (extensive margin) more than the volume of exports (intensive margin). Third, labor market conditions have a mixed impact on export activities. The most consistent finding is that firms covered b