Productivity Heterogeneity and Export Market Participation: A Study of Indian Manufacturing Firms

This chapter is an attempt to understand the nature of productivity heterogeneity and firm level export market participation in the Indian manufacturing industry. We test two alternative hypothesis first, self-selection of most productive firms into the export market and second, learning by exporting, where firms become more productive once they enter the export market. We also observe the role of R&D investment on export market participation of firms. The paper employs firm level data obtained from the Centre for Monitoring Indian Economy (CMIE) for the period 1990–2009 for analysis. Firm level Total factor productivity is estimated using Jevinsohn and Petrin (2003 Rev Econ Stud 70:317–341) method. Preliminary analysis indicates that exporting firms are more productive than the non-exporting firms in the Indian industry. However, the extent of this productivity difference is not very large compared to other countries. Study reports self-selection of more productive firms into the export market for the period from 1990 to 1999. Investment in R&D is important for the decision of the firms to enter the export market 1999–2009. We found no evidence in support of learning by exporting for the period from 1990 to 2009. However, continued participation in the export market and the intensity of exporting is associated with growth in productivity, indicating the presence of learning by exporting for the period from 2000 to 2009.