Background:

There is little research that examines the patterns of trade countries around the world exhibit, and even more so for developing countries. Where is it possible for companies to export? Why do firms prefer a sales destination to another? What firms sell more once they export and how many of them trade in foreign markets? Those questions have implications for public policy, both in the increase in foreign sales and in the diversification of exports in foreign markets.

Methodology:

Using a partial equilibrium model of heterogeneous firms inspired by Melitz (2003), different hypotheses are derived to answer the questions. The evaluation is carried out using a panel built with information on trade flows and production data of a sample of manufacturing firms located in Mexico from 2004 to 2010.

Results:

It is more likely that exporters will sell to large markets, although this possibility is restricted by the transportation costs to reach those destinations. Firms with higher productivity and size are more likely to export to more countries. The selection of the export destination at the firm level is influenced by the firm’s size and productivity, as well as by demand in destination country and export experience in a particular market. A growth of 10% in productivity would increase by 4.2% the possibility of firms choosing the Latin American market instead of the North American. With this increase, it is possible that it increased the probability of exporting to Europe or Asia by 2.5 or 2.4%, in relation to selecting the North American market. On the other hand, a 10% increase in global demand would cause a decrease between 2.8 and 12.2% in the probability of selecting other sales destinations regarding the North American market.

Conclusions:

Increases in productivity and the size of export firms would presuppose an increase in their level of sales abroad. In terms of diversification of foreign sales, substituting trade with the North American market is complicated; however, the most reasonable destinations would be Europe and Asia. The strategy to expand exports to other countries in small and medium firms should focus on increasing both their productivity and size, and improving their access to these areas. For larger firms, improving access would not only be an indispensable strategy, but one that could very possibly give results in a shorter time.