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Exports and Profitability: First Evidence for German Manufacturing Firms

  • Helmut Fryges
  • Joachim Wagner

Abstract Using unique recently released nationally representative high-quality longitudinal enterprise-level data for Germany, this paper presents the first comprehensive evidence on the relationship between exports and profitability. It documents that the positive profitability differential of exporters compared to non-exporters is statistically significant, though rather small, when observed firm characteristics and unobserved firm-specific effects are controlled for. In contrast to nearly all empirical studies on the relationship between productivity and exports we do not find any evidence for self-selection of more profitable firms into export markets. Due to the sampling frame of the data used we cannot test the hypothesis that firms which start exporting perform better in the years after the start than their counterparts which do not start. Instead, we use a newly developed continuous treatment approach and show that exporting improves the profitability almost over the whole range of the export-sales ratio. Only firms that generate 90 per cent and more of their total sales abroad do not benefit from exporting in terms of an increased rate of profit. This means that the usually observed higher productivity of exporters is not completely absorbed by the extra costs of exporting or by higher wages paid by internationally active firms. Copyright 2010 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 33 (2010)
Issue (Month): 3 (03)
Pages: 399-423

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Handle: RePEc:bla:worlde:v:33:y:2010:i:3:p:399-423
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  1. Andrew.B Bernard & J. Bradford Jensen & Stephen Redding & Peter K. Schott, 2007. "Firms in international trade," LSE Research Online Documents on Economics 3682, London School of Economics and Political Science, LSE Library.
  2. Schmalensee, Richard., 1987. "Inter-industry studies of structure and performance," Working papers 1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  3. The International Study Group on Exports and Productivity, 2007. "Exports and Productivity - Comparable Evidence for 14 Countries," Working Papers Central Bank of Chile 437, Central Bank of Chile.
  4. Wagner, Joachim, 2005. "Exports and Productivity : A survey of the evidence from firm level data," HWWA Discussion Papers 319, Hamburg Institute of International Economics (HWWA).
  5. Lucia Foster & John Haltiwanger & Chad Syverson, 2005. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," NBER Working Papers 11555, National Bureau of Economic Research, Inc.
  6. Joachim Wagner, 2003. "Unobserved firm heterogeneity and the size-exports nexus: Evidence from German panel data," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 139(1), pages 161-172, March.
  7. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-32, Nov.-Dec..
  8. Hennart, J.M.A., 2007. "The theoretical rationale for a multinationality - performance relationship," Other publications TiSEM b4c7bdd4-bfda-467f-9886-3, Tilburg University, School of Economics and Management.
  9. Helmut Fryges & Joachim Wagner, 2007. "Exports and Productivity Growth - First Evidence from a Continuous Treatment Approach," Jena Economic Research Papers 2007-063, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  10. Thierry Mayer & Gianmarco Ottaviano, 2008. "The Happy Few: The Internationalisation of European Firms," Intereconomics: Review of European Economic Policy, Springer, vol. 43(3), pages 135-148, May.
  11. International Study Group on Exports and Productivity (ISGEP), 2008. "Understanding Cross-Country Differences in Exporter Premia: Comparable Evidence for 14 Countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(4), pages 596-635, December.
  12. Schank, Thorsten & Schnabel, Claus & Wagner, Joachim, 2007. "Do exporters really pay higher wages? First evidence from German linked employer-employee data," Journal of International Economics, Elsevier, vol. 72(1), pages 52-74, May.
  13. Thierry Mayer & Gianmarco Ottaviano, 2007. "The happy few: the internationalisation of European firms New facts based on firm-level evidence," Sciences Po publications info:hdl:2441/10147, Sciences Po.
  14. repec:spo:wpecon:info:hdl:2441/10147 is not listed on IDEAS
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