Is agglomeration a free lunch for new exporters? Evidence from Chile

Abstract

The extant empirical studies do not wholly support the popular belief held by policy-makers on the positive influence of geographical proximity of incumbent exporters on the export decision of a non-exporter. To reconcile the mixed evidence, this paper examines the nonlinear relationship between the agglomeration of exporters and export decisions. In brief, the results show that the former positively affects the latter. Furthermore, the squared term of agglomeration calculated only by the number of skilled workers is negatively and significantly associated with export decisions, which can be explained by congestion costs in a local labor market for the skilled worker. As a result, these findings suggest an inverted U-shaped relationship between the agglomeration of exporters and the probability of being an exporter.