1 The Effect of Export Promotion on Firm-Level Performance

Abstract: Most countries promote exports. In this paper we provide answers to two key questions: First, does export promotion improve the performance of firms, and, second, to what extent do any benefits outweigh direct costs? We find that export promotion provided by the Danish government significantly increases sales, value added, employment and value added per worker of Danish firms. To identify these effects we solve self-selection problems in two ways. First, we account for demand shocks and firms ’ own entry activities with an extensive set of observed variables. Second, the Danish Trade Council selects firms based on known and observed information. Comparing self-selected firms with council selected firms we find evidence that self-selection leads to an under-estimate of the effects of export promotion. For small firms, summing expenditures on export promotion, subsidies and tax distortions, the gain in value added is roughly three times higher than the direct costs of export promotion