This paper uses a large sample of Italian manufacturing firms over the period 2004–06, to investigate whether different types of agglomeration economies affect firms' internationalisation choices. The main novelty of the work consists in linking the hypothesis of firm heterogeneity to the literature on agglomeration economies to explain firms' approaches and forms of internationalisation. We analyse two types of agglomeration economies: localisation economies and related variety. Our analyses show that the higher the firm's productivity level, the higher the probability it will engage in more complex modes of internationalisation and that localisation economies and related variety positively affect export but not the firm's multinational strategy. We check the robustness of our results using a two-stage instrumental-variable multinomial logit model in order to control for potential endogeneity of agglomeration variables.
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