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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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File URL: http://www.blackwell-synergy.com/links/doi/10.1111/j.1467-9701.2010.01261.x
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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. Foster, Lucia & Haltiwanger, John C. & Syverson, Chad, 2005. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," IZA Discussion Papers 1705, Institute for the Study of Labor (IZA).
  2. 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..
  3. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 105-130, Summer.
  4. Fryges, Helmut & Wagner, Joachim, 2007. "Exports and Productivity Growth: First Evidence from a Continuous Treatment Approach," ZEW Discussion Papers 07-032, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. repec:spr:weltar:v:144:y:2008:i:4:p:596-635 is not listed on IDEAS
  6. Gianmarco Ottaviano & Thierry Mayer, . "The happy few: the internationalisation of European firms," Blueprints, Bruegel, number 12.
  7. Schmalensee, Richard, 1989. "Inter-industry studies of structure and performance," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 16, pages 951-1009 Elsevier.
  8. 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.
  9. 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).
  10. Thorsten Schank & Claus Schnabel & Joachim Wagner, 2006. "Do exporters really pay higher wages? First evidence from German linked employer-employee data," Working Paper Series in Economics 28, University of Lüneburg, Institute of Economics.
  11. Joachim Wagner, 2003. "Unobserved firm heterogeneity and the size-exports nexus: Evidence from German panel data," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 139(1), pages 161-172, March.
  12. repec:spo:wpecon:info:hdl:2441/10147 is not listed on IDEAS
  13. 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.
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