Trade and FDI in Services: Firm Level Evidence for Germany

Services Trade has become important in modern economies today, but is hardly investigated in the international economics literature. We provide an empirical firm level analysis of German firms trading producer services. Similarly to trade in Goods, we find that trading firms are quite heterogeneous. Large firms strongly dominate service trade activities of German firms. Furthermore, we find in a sample with producer service firms that the more productive a firm is, the more likely it sells services through foreign affiliate sales compared to cross-border supply. This selection effect of firm productivity is in line with evidence for merchandise trade as well. Finally, we find that manufacturing firms are important for cross-border exports. Exports of firms are strongly positively related to goods exports of the different industries. Particularly construction services seem to play an important role as complementary services to goods exported.