# **6.  Conclusions**

The theoretical model presented in Section 2 explains the way in which domestic supply constraints and other firm attributes would generate firm-level variations in market diversification and intensity of exports. Heterogeneity among firms in their product efficiency, based on their firm-specific attributes and varying degrees in which domestic supply constraints affect firms’ production, leads to the difference in degree of export market diversification among firms. _Ceteris paribus_ , more efficient firms export to a larger number of markets because they have positive marginal profit from expanding their export markets, net of sunk entry cost, in these markets. Consequently, export intensity of these firms is higher than that of firms with low production efficiency. Firm-specific attributes could also lower variable and fixed sunk trade costs for some firms, which then leads to variation in market diversification and export intensity.

The bivariate analysis of geographical orientation and market diversification in Section 4, using enterprise survey data from seven low-income African countries, showed a positive correlation between export intensity and market diversification measured as the number of export markets the firms serve. The median labor productivity was also found to be larger for firms exporting to more countries. Thus, in support of the theoretical framework in Section 2, more efficient firms export more intensively as they export to a more diversified set of markets. The pattern of market diversification appears to be rather segmented between exports within Africa and exports outside Africa. Subject to the limitation of analysis based on cross-sectional data, the data show that firms exporting within a subregion are likely to expand their markets to other African countries outside the subregion, but not to global markets such as Europe. On the other hand, among firms exporting to Europe, the likelihood is to expand to other global markets such as North America or Asia. Little overlap is found between intra-Africa regional exporters and exporters to countries outside Africa.

The estimations of Instrumental Variable (IV) Tobit models of firm-level export intensity and market diversification (Section 5) provides evidence of strong scale effects both in export intensity and market diversification. Larger firms export more intensively and export to geographically more diversified sets of markets. The result resembles the findings of other researchers that looked at firm-level export propensity among African manufacturing firms, where they found larger firms are more likely to export. The models also show that technology factors such as new vintage capital and Internet access have strong positive effects both on market diversification and export intensity. While these factors have positive efficiency effects in production, they also lower trade-related sunk entry cost by improving product quality and lowering the search cost for overseas market opportunities. Foreign ownership, which also lowers entry cost based on the firm’s overseas networks and better access to foreign technologies, was also found to be positively related.

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