Export Participation and Performance of firms across the island of Ireland

Published: September 2018

Executive Report

This report examines firm participation in exporting, export performance and determinants of export destinations for firms across the island of Ireland. Using detailed aggregate and firm-level data from both Northern Ireland and Ireland, we aim to give as comprehensive a picture as possible about cross-border trade and the international activities of firms in both economies.

The key findings from the report can be grouped under three broad themes reflecting the roles played by exporters, small firms and the cross-border aspect of trade:

1. Exporting firms have systematically better outcomes across a range of key indicators, including employment and productivity. Expanding participation in exporting can therefore make an important contribution to the performance of the economy. This is supported by the following evidence:
   (a) In a comparison of the characteristics of exporters and non-exporters we find exporters have consistently higher productivity, turnover and employment.
   (b) Exporting activity in neighbouring markets (UK for Irish firms and Ireland for Northern Irish firms) is associated with higher performance relative to firms with domestic sales, with further performance premia for firms that are exporting to the broader international market.
   (c) Firms in Ireland tend to be more export-orientated than firms in Northern Ireland, where local sales play a larger role.
2. Micro and small firms play a significant role in cross-border trade and support for their expanded export participation could help underpin economic growth. Evidence for this
   can be seen from the following patterns:
   (a) There is a steadily increasing probability of being an exporter as firm size increases. This is particularly the case for goods firms, with services firms tending to be less export-intensive.
   (b) The performance gap between exporters and non-exporters, combined with evidence that entry barriers are lower for beginning to export in the neighbouring market, suggest that cross-border trade can be an important stepping-stone to broader export participation.
3. Cross-border trade has features closer to local trade than to international export activity, suggesting many firms regard the island as their local market and functional economy. A number of patterns in the data support this finding:
   (a) Almost all exporting firms in Northern Ireland include Ireland as one of their destination markets and over 80% of the smallest firm size group that export from Northern Ireland have all of their export sales in Ireland. In contrast, 6% of Northern Irish firms sell into the British market only, without having any export sales to Ireland or elsewhere.
   (b)The patterns of exporting found in these results are consistent with previous InterTradeIreland work which demonstrated a high degree of cross-border integration through supply chains and with work from NISRA and the Department for the Economy (DfE) which shows a relatively high frequency of delivery and low value per delivery for NI traders across the border. [1]
   (c) Empirical modelling of the characteristics of destination markets for Northern Irish and Irish export flows shows there is a very strong neighbouring market effect on the numbers of firms trading and on overall export sales. This shows that the neighbouring market is considerably more accessible than entering exporting more generally.
   (d) Looking at how firm patterns of exporting are determined across broader export markets, membership of the EU facilitates export participation for firms from both Ireland and Northern Ireland but has a positive impact on average export sales only for Irish firms. Increased participation by small firms may come about with some firms selling quite small amounts.
   (e) Overall, the work suggests that the impacts of any changes in the cost of trading post-Brexit are liable to be felt most particularly by very small firms trading across the border. Firms large enough to have expanded broadly into the EU market already are more likely to have the resources and scale to continue exporting, either in their current markets or by diversifying into alternative locations.

Notes

[1] NISRA and DfE (2018) available here: https://www.nisra.gov.uk/sites/nisra.gov.uk/files/publications/SCS_JUNE2018_FINAL.pdf