everywhere. In the case of Africa, Mengistae and Pattillo (2004) found a higher productivity premium for African exporters exporting outside Africa than for those exporting within Africa.

Contemporary international trade has increasingly deviated from a simple neoclassical comparative advantage model in the following three aspects: (1) relevance of trade cost and distance; (2) disintegration or fragmentation of the production process, which has led to intra-industry trade; and (3) prevalence of increasing return to scale and learning effects.<sup>3</sup> In all three aspects, it is important to understand the _firm-level dynamics_ surrounding trade. In particular, with regard to the third aspect, there is already a large body of literature that seeks to identify the micro-level empirical correlation between productivity and export performance.<sup>4</sup> Another implication emanating from these three aspects is that there is an increasing need to understand the factors that influence the _geographical directions of these firm-level exports_ , or in other words, with what countries these firms are trading. Locations and types of trading partners are in fact quite relevant to all three aspects. For example, regional and global markets have very different market structures in terms of degree of competition, and they impose different levels of fixed costs associated with market entry, not to mention the difference in distance. Producers in Uganda, for example, who sell their products to Tanzania would incur much less start-up costs and face much less competition than if they sell their products to the Netherlands. Different trading partners also provide different product space in which firms participate in cross-border vertical supply chains. Learning effects may likely differ depending on trading partners with whom firms trade.

The objective of this paper is to explain theoretically and assess empirically how the different characteristics of African manufacturing firms and the various domestic supply constraints they face are related to the pattern of geographical diversification of their manufacturing exports. The empirical analyses is based on the firm-level micro-data collected from the ongoing series of Investment Climate Surveys (ICS) conducted by the World Bank throughout the developing countries in various regions. Using this data set, we conduct some simple econometric analyses on the cross-sectional variation among firms in the dataset in terms of behind-the-border factors and export orientation.

The implications of domestic supply constraints on export enhancement are quite a significant research topic from a policy perspective, particularly in the context of the recent “Aid for

> 3 These three points are based on Anthony J. Venables’s presentation at a World Bank seminar on trade cost (April 30, 2007).

> 4 For example, Bernard and Jensen (1999); Clerides, Lach, and Tybout (1998); Aw, Chung, and Roberts (2000); and, more recently, Bernard, Eaton, Jensen, and Kortum (2003). For African manufacturing firms, Soderbom and Teal (2002), Milner and Tandrayen (2004), and Mengistae and Pattillo (2004), for example, used panel data on three African countries (Ethiopia, Ghana, and Kenya) and estimated significantly higher levels of productivity among exporting firms within the manufacturing firms of these three countries relative to firms selling only domestically.

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