m economfcs EI.~;EVIER Economics Letters 53 (1996) 213-219 The relation between firm-specific intangibles and exports Pontus Braunerhjeim The htdustrial Institute for Economic and Social Research (lUlL Box 5501, 114 85 Stockhohn, Sweden Received 25 May It)04; linal version received 23 September 19t)6; accepted 10cIoher ltJ0h Abstract The main issue addressed in this paper concerns file relationship between lirms' endowments in intangible proprietary assets and their export performance. The impact of investments in foreign production capacity on exports is taken into account in the empirical analysis. K~;vwords: Finn-specific assets; Skill; Exports: Foreign production ,IEL classification: FI4 1. Introduction The issues addressed in this paper are twofold; first, to define and operationalize a variable that more closely corresponds to the theoretically developed concept of firm-specific assets, and secondly, to investigate the relationship between such assets and exports. The influence of production capacity in several countries on firm's export performance is also considered. At an aggregate level, the determinants of exports are related to endowments of factors of production, technology, and size of markets. At the micro level, which is at focus here, access to firm-specific assets has been invoked to explain the establishment of foreign subsidiaries (Hymer, 1960). It is argued that the lack of markets for firm-specific assets and the risk of being exposed to 'opportunistic' behavior forces firms to internalize their operations through foreign direct investment (FDI), i.e. arm's length contracts are not a viable solution (Coase, 1937; Williamson, 1975). The lack of markets, i.e. high transaction costs, is a necessary condition for FDI to take place, yet they do not tell the whole story. Firms always have the option to supply foreign markets through exports, implying that the firm-specific argument has to be complemented with host country-specific advantages, transportation costs and economies of scale arguments (Buckley and Casson, 1976; Dunning, 1977; Markusen, 1995; Markusen and Venables, 1095). Hence, trade and production patterns across countries are determined by the interaction of trade costs and differences in production costs, together with strategic considerations. 0165-1765/96/$12.00 © 1996 Elsevier Science S.A. All rights reserved PII S0165-1765(96)00898- 1