Foreign Expansion of Italian Manufacturing Firms in the Nineties: an Ordered Probit Analysis

This paper develops an index of internationalization commitment or foreign expansion index (FEI) of the firm. The FEI integrates various dimensions of commitment to internationalization that, although interrelated, have usually been analyzed independently, i.e. exports, foreign penetration operations (such as foreign commercial agreements, sales outlets abroad and so on) and FDI. Because of its prominent inter-firm relationships and North-South discrepancies, this study focuses on Italy, constructing FEIs for each of some 4,000 firms for three periods characterized by different exchange rate regimes. The determinants of FEI in each period are studied at both the macro and micro levels, the latter through the use of an ordered probit model. The findings suggest that: (a) firm size, interfirm relations, innovation capabilities, location and technology are all highly significant determinants of FEI, but their relative impact on the foreign expansion is influenced by the exchange rate regime; and (b) although still low and especially so in the South, Italy’s FEIs have risen somewhat during the 1990s.