Firm’s characteristics in international trade in services: the case of Estonia

Abstract

International trade in services (ITS) is growing rapidly, yet firm’s characteristics that have effect on export performance remain underexplored. This study uses Estonian ITS data for 2019 with the information on 7,414 Estonian ITS firms’ characteristics to examine how export intensity (exports-to-turnover ratio) varies by firm size. The regression results reveal a nonlinear relationship between firm size (employment) and performance (export intensity): micro and small Estonian ITS firms export more intensively than large firms, with a positive quadratic term. The results are consistent with the Transaction Cost Theory, which emphasizes the flexibility and lower costs of smaller firms in ITS. Estonia’s business environment facilitates the launching and management of ITS firms. The research results provide information on ITS firms for the investors in small and open economies. In addition, we found that in 2023, the service industries like transport, information and communication technology (ICT) and professional services are more export-intensive service industries in Baltic countries than the EU-27 average.