As manufacturing firms expand globally, business services like advertising and legal support become essential for accessing new markets. This paper investigates how firms organize the provision of such market access services and the implications for foreign market entry costs, international trade, and welfare. Using French firm-level data and exogenous foreign demand shocks, we document that manufacturers increasingly outsource market access services domestically when they export to more destinations. We develop a novel theory of fixed and sunk export costs where firms weigh the managerial strain of internal provision against the adaptation costs of outsourcing - a mechanism that finds empirical support. We embed this endogenous market access cost function into a trade model, quantify its parameters, and study a variable trade cost reduction: the option to outsource doubles the variety gains for consumers and increases the producer surplus of smaller, less productive exporters.

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6 April 2022     Paper Number CEPDP1843

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This CEP discussion paper is published under the centre's Trade programme.