How Much Does Domestic Location Matter for B2B Firms’ Export Intensity? A Variance Decomposition Study

Abstract

Business-to-business (B2B) firms leverage the advantages of their domestic location to export goods and services. However, little empirical research has examined the extent to which domestic location effects explain variation in B2B firms’ export intensity, despite their potentially critical role. In this study, the authors explore this question with a variance decomposition analysis, an approach that allows them to quantitatively examine the relative contribution of domestic location and other effects on B2B firms’ export intensity. Their analysis uses a large longitudinal sample of 7,465 European B2B firms over 15 years (2004–2018). Splitting domestic location effects into the home country and subnational region (a geographic space within a country) effects, they find that each explains a substantial portion of the variation in export intensity. Notably, the results show that the examined effects are more critical for small and medium-sized enterprises than for larger B2B firms. Domestic location factors also matter more for B2B manufacturing firms than for B2B service firms. The findings enhance scholarly and managerial understanding of the application and predictive power of domestic location effects in explaining firm internationalization through exports.