UC Santa Cruz

Exposure to international trade has a significant influence on business strategies of firms. I focus on the relationship between the exporting activities and the importing of foreign inputs by firms, the influence of financial leverage of the firms on their decision to expand their international trading activities and whether pressure from foreign competition impacts the probability that firms will switch products in their product range. In the first chapter, I study the effect of the influence of the extensive margin of export status and the intensive margin of export sales on the extensive and intensive margins of imports of foreign inputs. Splitting the sample into EU member and non-EU countries, I find that the extensive margin of export status has a significant effect on the extensive margin of imports within both samples. However, it is only in the EU countries that I observe the intensive margin of export sales to have an influence on the extensive and the intensive margins of imports of foreign inputs. This may signify the existence of production networks between firms in the EU member countries. In the second chapter, I determine whether financial leverage influences firms to become two way traders rather than export only, import only and trade only within the national market. It is observed that the intensity of financial leverage is likely to inhibit expansion of trading activities of firms, particularly those that import only or trade only within the national market. Interestingly, firms that export only rather than trade two way are not significantly influenced by the intensity of the financial leverage. In the third chapter, I analyze the effect of the pressure from foreign competition on the decision of firms to introduce new products and on production costs as firms may add and drop products rather than add products only, drop products only and not undertake any product switching activities. I find that the effect of pressure from foreign competition is more likely to influence firms to add and drop products rather than add products only and not undertake any product switching activities.