Cultural Links, Firm Heterogeneity and the Intensive and Extensive Margins of International Trade

Abstract

It is well known that cultural links between countries increase bilateral trade. In this paper we exploit Portuguese firm-level data on exports to 199 destinations to investigate the questions: How? Do cultural links increase the number of exporters, or the shipments per exporter? What is the role of firm heterogeneity? The results reveal that cultural links, measured by common language/colonial ties and emigrant communities, are significantly associated with a lower incidence of within-firm export zeros and with larger shipments per exporter. Furthermore, they show that the former of these relationships tends to be magnified by firm size, suggesting that firm heterogeneity is key in shaping the interplay between cultural links and the extensive margin of international trade.Colonial ties, migration, firm heterogeneity, intensive and extensive margins