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Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants

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Alla Lileeva
Daniel Trefler

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Abstract

We weigh into the debate about whether rising productivity is ever a consequence rather than a cause of exporting. Exporting and investing to raise productivity are complimentary activities. For lower-productivity firms, incurring the fixed costs of such investments is justifiable only if accompanied by the larger sales volumes that come with exporting. Lower foreign tariffs will induce these firms to simultaneously export and invest in productivity. In contrast, lower foreign tariffs will induce higher-productivity firms to export without investing, as in Melitz (2003). We model this econometrically using a heterogeneous response model. Unique 'plant-specific' tariff cuts serve as our instrument for the decision of Canadian plants to start exporting to the United States. We find that those lower-productivity Canadian plants that were induced by the tariff cuts to start exporting (a) increased their labor productivity, (b) engaged in more product innovation, and (c) had high adoption rates of advanced manufacturing technologies. These new exporters also increased their domestic (Canadian) market share at the expense of non-exporters, which suggests that the labor productivity gains reflect underlying gains in TFP. In contrast, we find no effects for higher-productivity plants, just as predicted by our complementarity theory.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13297.

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Date of creation: Aug 2007
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Handle: RePEc:nbr:nberwo:13297

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F1 - International Economics - - Trade

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  1. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September. [Downloadable!] (restricted)
  2. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-75, March. [Downloadable!] (restricted)
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  3. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November. [Downloadable!] (restricted)
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  4. repec:rus:hseeco:122439 is not listed on IDEAS
  5. Van Biesebroeck, Johannes, 2005. "Exporting raises productivity in sub-Saharan African manufacturing firms," Journal of International Economics, Elsevier, vol. 67(2), pages 373-391, December. [Downloadable!] (restricted)
  6. Albert Park & Dean Yang & Xinzheng Shi & Yuan Jiang, 2006. "Exporting and Firm Performance: Chinese Exporters and the Asian Financial Crisis," Working Papers 549, Research Seminar in International Economics, University of Michigan. [Downloadable!]
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  7. Kevin J. Stiroh, 2002. "Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say?," American Economic Review, American Economic Association, vol. 92(5), pages 1559-1576, December. [Downloadable!]
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  8. Daniel Trefler, 2004. "The Long and Short of the Canada-U. S. Free Trade Agreement," American Economic Review, American Economic Association, vol. 94(4), pages 870-895, September. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. International Study Group on Exports and Productivity, 2007. "Exports and Productivity – Comparable Evidence for 14 Countries," Working Papers 0714, University of Urbino Carlo Bo, Department of Economics, revised 2007. [Downloadable!]
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  2. Stefanie Haller, 2007. "Exports and Productivity - Comparable Evidence for 14 Countries: The International Study Group on Exports and Productivity," Papers WP220, Economic and Social Research Institute (ESRI). [Downloadable!]
  3. Chevalier, P-A. & Lecat, R. & Oulton, N., 2009. "Convergence of firm-level productivity, globalisation, information technology, and competition: evidence from France," Documents de Travail 237, Banque de France. [Downloadable!]
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  4. Ngo Van Long & Horst Raff & Frank Stähler, 2008. "Innovation and Trade with Heterogeneous Firms," Kiel Working Papers 1430, Kiel Institute for the World Economy. [Downloadable!]
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  5. Richard Dion & Robert Fay, 2008. "Understanding Productivity: A Review of Recent Technical Research," Discussion Papers 08-3, Bank of Canada. [Downloadable!]
  6. Horst Raff & Joachim Wagner, 2009. "Intra-Industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry," Kiel Working Papers 1557, Kiel Institute for the World Economy. [Downloadable!]
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  7. Gabor Békés & Carlo Altomonte, 2009. "Trade Complexity and Productivity," Working Papers 2009.62, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
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