Productivity, size and exporting dynamics of firms: Evidence for Mexico

This paper examines the relationship between size and productivity on the export dynamics of a developing country like Mexico. The theoretical framework that guides the empirical evaluation is based on a simple model inspired by Melitz (2003). The results suggest that differences in size and productivity of firms indicate who will be able to internationalize and which markets can sell. According to estimates there are other feasible locations to replace the neighboring market of North America as the main buyer; however, the limiting factor for achieving this goal would be the low productivity of firms. In particular, it is that if transport costs are doubled, as is expected in destinations beyond the area of North America, would imply an increase in productivity of the firms of at least 9%. Finally, we find that the financial crisis caused a selection effect with respect to firms with higher productivity, while those firms that reported very low levels of productivity ceased its export activities