scriptive statistics on our estimation sample and the 2005 census of firms. We see that firms in our estimation sample tend to be larger, older and pay higher average wages than the typical manufacturing firm. They are also considerably more likely to be an exporter or importer. Our empirical analysis is therefore best suited to shed light on the behavior of large manufacturing firms, which typically account for the bulk of trade flows in each country (Bernard and Jensen, 1999; Bernard, Jensen, Redding, and Schott, 2007; Freund and Pierola, 2012).<sup>9</sup> Appendix Table A1 presents descriptive statistics on export destinations and source markets for input purchases of Portuguese firms in 1997, both in the full customs data and in our estimation sample, excluding petroleum trade. The leading destinations and source countries include several richer nations that adopted the Euro during our study period (Germany, Spain, France, Netherlands, Belgium and Italy) but also include non-Euro-zone countries such as the UK, US, Sweden, and Switzerland.<sup>10</sup> Among the main destination and source countries are several lower income nations such as Angola, Brazil, Cape Verde, Turkey, Morocco and Russia. We see that, for the vast majority of export destinations and source countries, bilateral export and import shares in the estimation sample are relatively similar to those in the full customs data. Appendix Table A2 provides summary statistics on firms in the estimation sample for each year of the period under analysis. We see that, for most indicators of interest, averages across firms remain fairly stable over time, despite the reduction in sample size observed after 2001.

# **3 Empirical Methodology**

We are interested in examining the effect of the income level of export destinations on output and input prices. Although the Portuguese data are among the most detailed available in the world, we do not observe input prices at the production-line level (corresponding to firm-destinationproducts or firm-destinations). Our strategy instead is to relate average output and input prices at the firm level to average destination income at the firm level. We describe the steps we follow to calculate average output and input prices at the firm level at the end of this section. We are

> 9By the same token, the data are not particularly well suited to cross-sectional comparisons between small and large firms, which require information on something closer to a full census of firms.

> 10The currencies of the initial set of countries in the Euro-zone were fixed in relation to one another on Jan. 1, 1999, and the Euro bills and coins were introduced on Jan. 1, 2002. The original members of the Euro-zone are France, Belgium, Luxembourg, Netherlands, Germany, Italy, Ireland, Spain, Finland, and Austria. Greece and Denmark joined the European Exchange Rate Mechanism (ERM II) in 1999, and Greece adopted the Euro in 2001. The Danish Krone remained pegged to the Euro thereafter. We treat Greece and Denmark as part of the Euro-zone for our purposes. We also include several smaller countries (or administrative regions) that use the Euro as their currency: Andorra, Malta, San Marino, Slovenia, R ́eunion, Mayotte, Guadalupe, Guyana.

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