Learning by exporting: the role of competition

This paper finds that increased competition in export markets could reinforce firms’ learning-by-exporting processes. We investigate competition as a learning channel by employing 25 years’ worth of Indonesian garment firms’ data. Firms in this labour-intensive industry experienced a long period of a quota regulation under the Multi-Fibre Arrangement (MFA), which governed much of the global trade in garments before its abolition in 2005. This allows us to conduct a quasi-natural experiment type of study on how the MFA affected apparel exporters’ performance. Using propensity score matching and difference-indifference methods, we find that the impact of exporting on total factor productivity during the MFA implementation period is mixed; but after it was abolished, productivity increased by more than 12 percent. This implies that exporters gain a significant learning-by-exporting benefit from competition (that is, without a special facility such as the MFA), and that interventions that protect exporters from such competition might lessen the benefit.