Service Offshoring and Export Experience

Service inputs significantly influence export costs and firm internationalisation. A new dataset on French firms’ participation in global value chains reveals that experienced exporters are more likely to source services at destination and within their group. We rationalise these facts in a model where firms are initially uncertain about their export profitability and learn it while selling abroad. The effect is amplified in uncertain markets and in presence of frictions to domestic sourcing. Offshoring firms, in turn, exhibit reduced volatility and are less likely to exit foreign markets. Our empirical findings strongly support these theoretical predictions.